Today we will talk about investing in venture capital funds in 2023, the impact of the economic crisis on the stability of venture capital funds, and what new opportunities the crisis opens up for investors. We were happy to have Victoria Tigipko, founder of TA Ventures and iClub, as our guest, who told us about the most attractive industries 2023 and new trends in venture capital investing.
Times of economic crisis and instability often cause anxiety and uncertainty for investors. The recession projected for the end of 2023 is just such a period. However, this is precisely when hidden opportunities and new horizons for investment can be discovered. And in this situation, venture capital investment becomes especially attractive.
In a crisis, when traditional markets and investment instruments are subject to significant fluctuations, venture capital investments offer advantages and the potential for high returns. The crisis creates the need for new solutions and innovation, and venture capital funds allow investors to invest in promising startups and young companies that can offer innovative products and services that can change existing industries and create new ones.
In addition, such organizations can quickly rebuild their portfolios and actively seek new investment opportunities. This allows investors to adapt to the changing situation and improve their position in times of crisis. And the asset diversity of venture capital projects spreads risk and potentially increases portfolio returns. Moreover, venture capital investments can present high returns over the long term, especially if promising and successful projects are selected.
Performance evaluation is not the last but one of the critical roles, as funds can assess the potential of startups and make informed investment decisions. Thanks to this experience and expertise, investors can gain access to carefully selected projects and reduce the risks of their investments.
Ultimately, investing in venture capital funds during a crisis allows them to discover new opportunities, flexibly adapt to market conditions, diversify their portfolio, and generate substantial returns over the long term.
How the economic crisis of 2023 affected the investment markets
Emerging uncertainty and declining confidence usually lead to investor preferences and market dynamics changes. Nevertheless, the crisis has a negative impact on the economy and business and opens up new opportunities for investors that were previously invisible or irrelevant. By and large, any crisis «reshapes» the economy and the market — some suffer losses in these conditions, while others get an opportunity to «take off» on new trends.
In 2023, the world economy may face a recession. However, economists at Deutsche Bank note that this is not the worst period in the economy because the situation was much worse in 2020 when the coronavirus pandemic began and in 2009 after the global financial crisis. Now the main signs of bubbles are present in the stock and international debt markets. The same Deutsche Bank, at the end of March 2023, was under the threat of bankruptcy, having lost a fifth of the value of its shares, but, of course, the largest bank in Germany will not be allowed to go bankrupt. Of course, the overall world situation will depend on the nature of monetary policy in the U.S., Europe, and other major countries.
So how has the 2023 recession affected investment markets, and what does this mean for investors?
One of the first visible effects of the crisis is the decline in asset prices.
Minus: whether the assets are stocks, real estate, or commodities, the decline in demand and panic in the market makes them cheaper.
Plus: At this point, investors may find opportunities to acquire assets at lower prices with the hope of a future market upturn.
Investors usually become more cautious in times of crisis and prefer more stable and safer investments. Assets such as government bonds, gold, or stock indexes may be selected. Riskier investments, including venture capital or startups, may experience reduced demand as investors seek to minimize risks.
Nevertheless, this is already an outdated picture, as for 2023, venture capital investments take on a new meaning and are regulated by new faces on the stock board. For example, one such player is Victoria Tigipko's venture fund TA Ventures and its investment platform iClub, which conducts in-depth analytics on startups, monitors their every step, and helps at every stage of development. In-depth knowledge of a startup's activities helps minimize risks and invest in knowingly successful businesses with a transparent model and high demand. Therefore, it is no longer possible to say that venture capital is unreliable today. On the contrary, the crisis leads to the formation of new market needs, startups create businesses to fulfill these needs, and venture investments in them allow expecting future unicorns with the right investment approach.
The Crisis Opens New Opportunities for Investors
Times of crisis are accompanied by increased volatility in financial markets.
Minus: rapid price fluctuations and uncertainty can pose risks to investors.
Plus: traders who can effectively analyze the market and make quick decisions can benefit from short-term market transactions.
The crisis also encourages governments and regulators to introduce new measures and policies to stabilize markets and mitigate the effects of the crisis. Such actions can influence investors' investment decisions and strategies. For example, introducing fiscal stimulus or changes in the tax regime may affect the attractiveness of specific sectors or assets for investment.
However, the crisis can also provide investors with opportunities to diversify their portfolios despite the uncertainties and risks. Certain assets or industries may prove more resilient to a crisis, and investors may view them as alternatives to traditional investments. For example, during an economic downturn, infrastructure projects or companies related to healthcare and technology may remain stable.
Below we'll talk about the specific risks of investing in times of crisis.
Investing in the Crisis: What Risks?
To make informed decisions and cope with risk, it is essential to understand what investors face in times of crisis.
- Market fluctuations.
Significant fluctuations in financial markets accompany crisis periods. Prices of stocks, bonds, commodities, and other assets can fall sharply, creating uncertainty and negatively affecting an investor's portfolio. Such fluctuations are inherent in investing in a crisis and are not always long-term trends. A sound and diversified portfolio can help mitigate the impact of market fluctuations.
- Falling yields.
Companies and sectors of the economy may see their financial results deteriorate. This could lead to reduced investment returns, such as dividends, interest on bonds, or stifling stock growth. Investors should be prepared for the possibility of a temporary decline in the return on their investments and consider the fundamentals and prospects of companies when evaluating return potential.
- Liquidity and access to funds.
During a crisis, the market may become less liquid, making it more difficult to sell or exchange assets. This can be a problem if an investor needs quick access to funds. Therefore, before investing, you must consider your financial needs and ensure sufficient liquidity in your portfolio.
- Increased credit risk.
In times like these, many companies and governments face financial difficulties, which increases the risk of default or non-payment of debt. Investors holding bonds or other debt instruments should carefully analyze the issuer's credit rating and consider the possibility of default when assessing risks and possible returns.
- Geopolitical instability.
Political conflicts and regulatory changes are possible. Such events can hurt markets and investments. Investors must be prepared for potential shifts in the political and economic landscape and have the flexibility to adapt to new conditions.
Period of uncertainty during the crisis requires deployed portfolio diversification
To cope with the risks of investing in a crisis, it is essential to adhere to a few fundamental principles:
- Diversification of the portfolio between different assets, sectors, and regions.
- Careful analysis and risk assessment before investing.
- Investing with a long-term perspective.
Conscious investing in a crisis requires careful planning, analysis, and risk appetite.
New opportunities for investors offered by the crisis
While complex and uncertain, crisis periods also present new opportunities for investors. Here are a few areas where potential advantages and benefits can be found in times of crisis:
- Investing in real estate in the crisis.
Real estate prices can fall during an economic downturn, allowing investors to purchase lower-price properties. This can be especially attractive to long-term investors looking for steady rental income or long-term appreciation in asset values.
- Investing in stocks.
Stock prices can drop significantly. This can provide an opportunity to buy shares in promising companies at a reduced price. Investors with a long-term perspective and the ability to analyze fundamental data can make successful investments and earn high returns over time.
- Investments in commodity markets.
In times of crisis, prices for commodities such as oil, gold, metals, and others can fluctuate based on supply and demand. This creates opportunities for investors who specialize in commodity trading and are willing to profit from price fluctuations.
- Investing in startups and innovation.
Crisis periods often stimulate innovative ideas and the emergence of new startups. Investors interested in long-term investments with high growth potential may pay attention to startups operating in sectors that receive additional support and incentives in times of crisis, such as healthcare technology, e-commerce, digital services, etc.
We are primarily interested in the latter point because it is most affected by the current «redistribution» of the financial market. Investments in the crisis in venture capital funds are now becoming one of the safest diversification tools since the deep analytical approach of such «pillars» as the Victoria Tigipko Foundation and iClub allow to calculate the risks and prospects of each startup, as well as analyze the market and control every step in the development of the selected company.
Victoria Tigipko's TA Ventures and iClub: the secret of success
Venture capital funds are, in principle, an essential tool for supporting innovation and stimulating startup development. One successful example is Victoria Tigipko's fund TA Ventures and the investment platform iClub. They have achieved significant results and earned recognition in the investment sphere. What is the secret of their success?
- Experience and expertise.
While most venture capital deals are done «on the doily» with no guarantees, iClub takes an in-depth analytical approach to each of the proposed businesses for investment. The company's success lies in its people, an experienced team, and experts who have in-depth knowledge of venture capital investments and the field of innovation. This allows for qualitative analysis and evaluation of projects, selecting potentially successful startups for investment.
- A network of connections and partnerships.
The Victoria Tigipko Foundation actively builds partnerships with key players in the innovation sphere, including entrepreneurs, industrial partners, and opinion leaders. This allows us to create favorable conditions for the development of startups.
«We babysit and help companies raise money from hundreds of thousands to hundreds of millions. This is possible thanks to our unique expertise with a net worth of 330,000 contacts. All in all, we have more than 3,000 investors and more than 230 companies in our portfolio».
- Portfolio diversification strategy.
Investing in a wide range of innovative projects across industries and market segments helps reduce risk and increase the likelihood of long-term success. It is diversified across geographies (from the Americas to East Asia) and other verticals.
- Active participation and support.
TA Ventures and iClub are not limited to financial support. They are actively involved in developing startups by providing expert guidance, advice, and access to their resources and network of connections. For example, club members can communicate directly with funders and receive monthly reports on company development. This approach helps startups grow and develop, contributing to their successful market entry.
«Today we have 18 clubs, 18 geographies, and soon we will have 25. We continue to develop further — both in the Gulf region, the MENA countries, and South-East Asia (for example, in Dubai and Singapore). These are the regions we will cover in the next 2 quarters. And then we will develop other territories — Australia, New Zealand, where many of our people live and have moved there. Somewhere there are fewer of them. Somewhere there are more of them. Accordingly, we group them into regional clusters of potential angel investors who understand their actions. Therefore, everyone now, even the significant funds (top 10 American and European multibillion-dollar funds), go to lower levels and want to enter the early venture stage. It's a specialty because you babysit companies from the early stage and bet on people who know what they're doing and do the expertise. That's precisely what we do. And most importantly, we don't compete with the big lead investors because our classic role is the early investor».
Why is it better to invest through venture capital funds?
There are many opportunities in the investing world, and choosing the best option can be tricky — one attractive tool for investors in venture capital funds.
A key advantage is the ability to diversify risk. Venture funds create portfolios of different startups or companies, spreading investments among them. This approach reduces the impact of the failure of one project on the investor's overall profit. If one task fails, gains from other projects can outweigh the losses. Also, investors who choose to invest through venture funds have the advantage of access to expert evaluation and advice from professionals, which can increase the likelihood of a successful investment.
In addition, venture capital funds often invest in startups and companies operating in innovative industries. This allows investors to participate in developing new technologies, products, and services with significant growth and profit potential. Venture capital investments in startups and innovative projects can be crucial to success and create a substantial investment.
Funds can provide startups with financial support and assistance in developing business strategies, finding customers, attracting new partners, etc. This access to resources and networking can be critical to the success of startups, and investors through venture capital funds can take advantage of these advantages.
Undoubtedly, venture investments are certain risks. However, successful investments in startups can bring significant returns. Companies that go public or attract investments from major market players can significantly increase their value, resulting in a high return on investment for venture capital funds and their investors.
«In our portfolio, there are now more than 237 invested companies, 6 IPOs (initial public offering/placement, i.e., the process of placement by the company of its shares for sale at the stock market - ed.), and postponed IPOs. For example, SumUp, and Deepl are serious unicorns. Among European companies, we have a portfolio of 11 unicorns and 20 sunicorns (super unicorn or decarcorn — start-up companies with a market value estimated at more than 10 billion U.S. dollars - ed.). We initially chose the early venture strategy because it's essentially about business. It's like building small companies».
What industries are the most attractive for investment in the crisis of 2023?
As we said before, crisis periods can be more attractive for investment because they offer new opportunities and potential for growth.
In general terms, several industries may be preferable to investors in a crisis in 2023.
- Technology and Digital Transformation.
The crisis does not hinder technology and innovation. Despite the world's complex political and economic situation, the field of information technology and digital transformation continues to grow and develop. Software, Internet services, cloud computing, artificial intelligence, and other innovative technologies are becoming market leaders.
- Health and Pharmacy.
The healthcare and pharmaceutical industry remains key even in times of crisis. The need for medical services, drugs, and innovative solutions in healthcare always remains high. Investments in medical technology, biotechnology, and pharmaceuticals in times of crisis are always about stability and growth potential.
- Energy and Renewable Energy Sources.
This sector continues to evolve and become more and more relevant in light of climate change and the search for alternative energy sources. Investments in solar, wind, hydropower, energy efficiency, and innovative energy solutions are becoming increasingly promising.
- Consumer products and services.
Crisis often brings new consumer needs to the forefront, which changes in a new environment. Businesses in essentials, online retailing, delivery services, and other forms of home entertainment can potentially grow in a crisis. For example, the period of the coronavirus pandemic brought delivery services to the forefront, including in the pharmaceutical industry — pharmacies with their delivery service were on trend.
- Online Education.
Due to the change in educational practices and the demand for distance learning given the beginning of the pandemic and then the military conflict in Ukraine, companies offering innovative online educational platforms, technological solutions, and education services have a strong potential for growth.
«Digital Health and biotechnology are the two most significant trends we see today and invest in. DeepTech also focuses on severe technologies with AI in mind. This is also a massive cluster of transparent businesses that are dense on the surface, that is, offline, but all the processes that AI and new technologies can accelerate, they accelerate.
When it comes to health, the big companies with health monitoring software and devices will remain firmly in the market. All new health technology should be built on real-time metrics tracking (e.g., noninvasive blood testing). Companies that develop such technology will be more and more in demand. This is no longer the future. It is our reality.
Hospitals are not solving the health problems of many millions right now. They need to be unloaded so that people can monitor all their health indicators at home in real time and receive personalized pills with the substances and vitamins they need. This will save time, eliminate hospital queues, and reduce GDP by 18% in America and 11% in Europe.
Also interesting are technologies that allow us to speed up any technological processes, to process and receive information quickly, to get rid of thousands of lawyers or middle managers, because of which will form a new hybrid model of horizontal managers, specialists, and experts, in which one person controls the artificial intelligence.
Other pillars are security and infrastructure software. If we talk about the latter, we are talking about production facilities, in which we need to remove all the people who are not required now and are a risky component (for example, in pharmaceuticals, modern sensors, and robots must be used in the production and transportation of vaccines, which make no mistakes, because human error can cost us our health).
These are our main trends. Next is the future of food (e.g., proteins that will feed people in 2050), solar energy, etc.»
Venture Capital and Stock Market Stability: What's Happening Now and What to Expect in the Future?
We are now seeing some significant trends and events that affect the stability and prospects of these markets, and we can also make assumptions about what we can expect in the future.
The economic crisis of 2023, like any financial crisis or recession, has significantly impacted the venture capital and stock markets. Yes, investors usually become more cautious in times of crisis. However, today the picture is different, as there are more reliable tools to regulate startups, which allows to minimize the risk of early investment.
In addition, technological innovations such as artificial intelligence, blockchain, tokenization, and others can potentially transform venture capital and stock markets. These innovations can offer investors new opportunities and help create successful companies. The technology sector is expected to continue to grow and remain attractive for investment in the future.
There has also been a growing interest in alternative investments such as venture capital, private equity, and real estate. This is due to investors' desire to diversify their portfolios and look for high-yield opportunities. The growth of alternative investments is expected to continue and provide new opportunities for investors.
«The venture capital market is becoming more stable because people understand these deals. These are business people who communicate, think, and expand their consciousness and opportunities. If we talk about funds, there are already unclear numbers; there's already a story, which is sometimes presented differently. But in ventures, you see a pure picture of young girls and boys who make models you can understand. That's the thing. You follow their activities, you watch them grow from month to month, and that's a unique opportunity to learn. Our goal is to form a new ecosystem of thinking angel investors who don't just see their own business but see the whole world. They become the best leaders in the best territories. Then they can become mentors, advisors (an advisor with years of experience who helps others make informed decisions about their career or business - ed.), deepeners (door opener - helps establish contact with potential investors - ed.), etc. They solve the question of both their realization and their mission and earnings. As a result, their businesses get smarter.»
Why do venture capital investments beat liquid markets?
Overall, venture capital investments have several advantages over liquid markets, making them more attractive to investors. In addition to high return potential, innovation, expertise, and active management, venture capital funds offer a long-term perspective. Investors understand that the success of a startup can take a long time, and they are willing to wait and support it for several years. This differs from liquid markets, where trading and investments are often based on short-term trends and price fluctuations.
«60% of our deals — America, 20% — in Europe, 10% — in Latin America (Brazil, Mexico), and 10% — in East Asia. That is, there is diversification by geography, diversification by verticals (the most «fat» today, where the whole world is looking). And, of course, the earliest stage. Because in already-developed companies, you don't understand what's going on. They send you reports once a quarter, and God forbid it's true. In our club, our members can talk directly to the founder. It's an opportunity to hear how these most competent people think, who we're investing in at an early stage. And it's a much more transparent business than playing the liquid markets without knowing what's going on with the companies».
Watch the full interview with Viktoria Tigipko on our YouTube channel:
If you want to be part of transparent businesses and future unicorns and invest in venture capital, leave an application at the button below:
Assessing the Effectiveness of Venture Capital Investment
Venture capital investments have characteristics that must be evaluated for effectiveness before investing. For example, key performance indicators include:
- Internal Rate of Return (IRR) — determines the interest rate at which the net present value of an investment is zero. The higher the IRR, the more efficient the venture investment is.
- Money Multiplier (Money Multiple) shows how many times the value of the investment has increased by the time of exit from the project. This allows us to evaluate the investment's success and the level of return the investor has received.
- The Payback Period is when the investment is returned to the investor. The shorter the payback period, the more effective.
- The company's Valuation (Valuation) determines the investor's stake in the company and predicts its future value.
- Risk Ratio — helps assess the level of risk associated with a venture investment. The lower the risk ratio, the better.
- Management Quality — The competence and expertise of a company's management team can significantly impact the investment's success.
- Market and Competitive Environment Analysis — helps assess a company's growth potential and competitiveness.
In general, evaluating the performance of a venture capital investment requires a comprehensive approach and analysis of various factors. It would be best to consider financial and non-financial indicators to make an informed decision about investing in a venture.
And to conclude: understanding the impending recession of 2023 raises the question of how to attract investments in the crisis, diversify the portfolio, invest in high-risk venture capital funds, and what country to buy real estate to minimize risks. Read in our expert article why investing in real estate in Cyprus can be an exciting option in the crisis of 2023 and what factors should be considered when deciding.
Taxes are also an open question. Yes, Cyprus has some of the lowest taxes in Europe (12.5% corporate rate), but the IP Box program allows you to pay a tax rate of only 2.5%. Suppose you own an IT company or an innovative business that develops an intellectual product. In that case, you can learn from our current article about the conditions for obtaining an IP Box in Cyprus in 2023.
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Download the check list in PDFИсточники
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