You're a Venture Capitalist who's facing a downturn. How can you maintain your resilience?

The true measure of an investor's mettle is tested during a downturn. Founders hold in high regard those investors who stand by them shoulder to shoulder during challenging times. Investing isn't about glamour; it's a demanding role that requires resilience. Downturns reveal the genuine investors from those who are merely in it for the lifestyle.

Critical analysis and bucketing of portfolio on performers , survivors and strugglers in the downturn environment. Focus on strugglers help them to graduate to survivors by refocusing on profits and/or explore inorganic ideas , reinforce survivors with capital and refinement of focus , explore supernormal growth with performers via inorganic ideas which are often available at great value ..

Just remember, you can't save your way out of a downturn so keep investing. Maybe even invest more- downturns are an opportunity.

A downturn is a part of any job or venture, and venture capitalists also need to face this over time. The best approach is to analyze the situation and make the best possible decision based on available resources and industry trends. However, assuming that there will be no downturn would be incorrect. One of the most common changes in venture capitalism is the shift in industry trends, particularly with the rise of AI and deep-tech scenarios. It is becoming increasingly important to adopt new strategies to stay competitive and mitigate the impact of any downturn.

VCs are the highest risk takers as by merely meeting few times and few documents with industry insights, they invest on other businesses where risk of loosing is highest. However, they have still committed hurdle to their investors. With highest risk, downturn is still a part of the game and being emotionally resilient is far more important. Evaluating the scenario, restructuring or revamping the business strategies, confidence can be regained by taking some ground operations on hand and making fundamentals work. Unless one is fully aware about the scenario on ground and takes the charge of the same, scenario can not be revamped.

Cultivate a culture of transparency and openness by fostering robust communication channels with your diverse array of stakeholders. From seasoned investors to visionary entrepreneurs and beyond, keep them abreast of developments, challenges, and strategic shifts. Through candid dialogue and regular updates, you foster trust, alignment, and collective ownership of challenges and triumphs alike. Strong stakeholder relationships form the bedrock of resilience, enabling collaborative problem-solving and shared victories.

Leverage stakeholder meetings for strategic brainstorming sessions, focusing on identifying quick wins and long-term opportunities. Implement a real-time feedback loop through a digital dashboard, enabling all parties to monitor progress and flag issues early. Highlight case studies of past downturn successes within your network to inspire confidence and provide a roadmap for navigating current challenges.

Work on solutions. Not neccessarily additonal capital. Help, advise and mentor investees on difficult decisions and managment process. Provide new introductions, help with execution, cost saving or fire fighting processes. Engender collaboration, provide insight into how to enthuse and reward progress.

In the challenging landscape of a market downturn, the ability to communicate effectively and transparently with stakeholders is tantamount to captaining a ship through a storm. Engage with your investors, portfolio companies, co-investors, and team with the utmost candor, sharing your strategy, outlook, and the realities you face. Embrace their feedback and perspectives as invaluable tools for navigation. This open dialogue not only builds trust and strengthens relationships but also fosters a collaborative culture, harnessing the collective wisdom to steer through adversity. Spread Shark Love #divineintervention #gabenfreude

Communication with GP's/LP's, service providers, and prospective investors is critical at all times but especially in difficult times. More than anything people will appreciate open lines of communication instead of keeping them in the dark. Transparency is everything!

In my experience, during a downturn, the market’s collective risk appetite is low, which means your LPs have possibly over allocated so its harder to raise. This eventually trickles down to startups who are raising too. If you are actively investing, look for startups with strong fundamentals (strong business model, solid Go-to-Market and path to profitability), as “Blitzscaling” will not work in a downturn. Keep a healthy level of dry powder as you’ll need to support your portfolio companies, help them raise bridge rounds if needed. Sit with them and help them prioritise activities to become sustainable. If you’re fundraising, it’s hard but you will get through it. Keep speaking with peers, building relationships. It too shall pass.

Initiate a quarterly 'strategy recalibration' session, evaluating emerging technologies or sectors for potential investments. Consider partnerships with academia for insights into cutting-edge research, potentially leading to early-stage investment opportunities. Analyze data on consumer behavior shifts during downturns to identify resilient or booming markets. Utilize AI for predictive analysis on start-up success rates, optimizing your portfolio for stability and growth. Explore co-investment models with non-traditional investors (e.g., corporate venture arms) to share risk and access new networks.

Many experienced VCs adapt their portfolio to account for possible macro- or micro-level market disruptions not through underwriting alone, but instead by ensuring that it is possible for one company to rely on or support another if acute distress is experienced. For example, in a retail portfolio company case, the product line was temporarily and partially redeveloped to allow for sales to two other portfolio companies. This was not a long-term fix and could lead to dependency issues across the portfolio. However, using such tactical tools as a short-term fix can be consistent with a VCs broader strategic goals and principles.

In the unpredictable theater of a market downturn, the astute venture capitalist must embrace the art of strategic adaptation. Reevaluate your investment criteria, consider diversifying your portfolio, and perhaps pivot towards sectors or stages that promise resilience or untapped potential. Reexamine your approaches to valuation, due diligence, and exit strategies, and be open to renegotiating terms. This flexibility, coupled with a dash of creative thinking, not only ensures your survival but can also carve out new avenues for growth, distinguishing your firm as a versatile and innovative player in the venture capital arena. Spread Shark Love #divineintervention #gabenfreude

During a downturn, maintaining resilience as a VC requires strategic adaptation. Focus on portfolio companies' viability, supporting those with solid fundamentals. Diversify new investments across sectors with tailwinds you have strong convictions in to mitigate risk. Stay agile by reassessing investment theses and adjusting strategies accordingly. Once finalized, be excruciatingly disciplined about sticking to your mandate. Foster strong relationships with LPs for continued support but also look out for secondary liquidity sources and positive messaging tectics. Utilize downturns as opportunities for value investing, seeking undervalued assets. Lastly, maintain optimism, viewing challenges as growth opportunities in a cyclical industry

- One thing I've realised after working with 20+ companies is that founders feel there is only one path to success. As a VC, its your role to show them various other paths, and then let them make the choice. Some times you might even have to help them redefine what success looks like!

Do whatever you can to support your portfolio. The reality is that you might not be able to provide financial support as you might be fully deployed or have pressure from your LPs, so now is time to roll up your sleeves and generate leads for new investors, and more importantly customers. In times of downturn, cash is king for startups, so if you can provide new ARR or investment capital, you’re the hand of the king.

Supporting your portfolio is the only true driver of performance. You can either hope for the Power Law to start working or you can take your returns in your own hands by actually helping out your founders. Not always the most popular topic to mention, but, in practice, helping them by getting a really good view on the drivers behind their cash burn and helping them to steer those to extend runway while still investing in your business based on your leading indicators, is (next to all the help with go-to-market and organisational setup) the best you can do to help them buy extra time when shit hits the fan.

Facilitate 'cross-pollination' workshops where portfolio leaders share best practices and innovative solutions. Launch a digital toolkit platform providing templates and resources for financial modeling, market analysis, and customer acquisition strategies. Secure exclusive partnerships with technology providers for cost-effective access to tools and services. Spearhead a monthly recognition program highlighting portfolio companies that achieve key milestones, driving motivation and visibility.

In downturns, real VC's with operating experience make the most difference than pure financially oriented ones. For first time founders who never had to make massive budget cuts, lay people off, the stress can look insurmountable but business is a long game and VC's can guide their founders to do the right things and to do them right. From increasing runway by cutting budgets, to looking for alternative financing methods like banks and revenue financing will be essential tools that VC's can introduce or guide their founders to. On the other hand they also need to paint a realistic picture and guide them with KPI's, on what they'd expect from the founders before considering a bridge round or a signal follow-on financing requirements clearly.

Acknowledge your mistake would be the first step I would take. Without it, several actions could lead to good money going after bad ideas or loss of faith with investors.

In the unforgiving realm of venture capitalism, especially during downturns, the capacity to learn from mistakes and failures is akin to discovering hidden treasure. Even the most meticulous and seasoned investors will encounter missteps. Instead of being ensnared by regret, view these moments as invaluable lessons, opportunities to refine your skills, broaden your knowledge, and sharpen your judgment. Reflect deeply on each setback, engage with feedback from peers and mentors, and assimilate these lessons into future strategies. This process of continuous learning and adaptation not only fortifies your decision-making but also galvanizes your resilience, preparing you to navigate future challenges with enhanced confidence #gabenfreude.

Cultivate a culture of introspection and continuous improvement by embracing the transformative power of failure. Reflect deeply on past investment decisions and outcomes, extracting invaluable insights and actionable learnings. Analyze successes and setbacks alike, discerning patterns, refining frameworks, and honing your investment acumen with surgical precision. With each misstep transcended, you forge a path of enlightenment, resilience, and enduring excellence in the dynamic world of venture capital.

Definitely one must learn from their mistakes by Fund managers should never fret about lost opportunities. Every Fund manager who is good enough to analyse a Promoter, a Board, A Company, An Industry, A Country, A Region and the World will know that not all companies will be unicorns. Effort should be to learn from the mistakes of good and bad investments and improve on them. I firmly believe that - People fail, Businesses don't fail.

Focus on Fundamentals: Prioritize investments in startups with strong fundamentals, clear value prop, strong economics, and the ability to generate sustainable revenue. Provide Support to Portfolio companies: Work closely with your portfolio companies to help them navigate the downturn. Adjust Investment Strategies: this might mean focusing on later-stage investments with less risk or diversifying into new sectors that are more resilient Last but not least .Strengthen Relationships with LPs: communicate openly and regularly with your LPs about your strategy for dealing with the downturn and how you plan to protect and grow their investments. Building trust and maintaining transparency are crucial, especially in challenging times.

Economics is first and foremost a social science. A downturn in any sector, is a time when our neighbors, customers, and team members are all re-evaluating what we do and why it matters to others. In 1930 the surprise was the rise of "Hoovervilles": Camps where homeless families lived out of their cars, putting mobility to reach their next job ahead of keeping a permanent home. Downturns teach which of our assumptions about all our stakeholders, were valid. Ask questions. Learn. Improve your offerings. Pivot to serve new needs. The market carries with it the knowledge and wisdom of every living person. Find out what they need and use what you can, to supply it.

There is a strategy to reduce risk/ magnitude of downrounds, which many VCs down like to follow. When marking up book-values of the portfolio companies be conservative. You can apply liquidity discounts when increasing the value of your portfolio company after an upround (instead of increasing your positions value to the value of the funding round of 200, you can take a 10-20% liquidity discount and book it at 160-180). This gives you a buffer for changes in book value. Yes, you cant show your investors along the way crazy high book gains, but it (partly) protects you for downround impacts and those discussions with investors. Worth to consider from my perspective (and in Banking pretty standard).

Downturns are a normal part of the journey of any successful investor. In fact, it is the part of the cycle that separates the great ones from the rest of the pack. For seasoned investors this is always painful but also provides significant opportunities. For first time (upcycle only) venture capitalists, this is a great opportunity to prove yourself and show that you are not just a momentum play or the child of exuberant times (right place, right time but questionable skillset). That alone should be enough of a motivation to keep first time VCs going and working pretty hard to deliver solid, realized returns through the cycle for their LPs.

VC landscape across the globe needs a 2.0 event where investment principles need to be discussed and rewritten. This follows both in terms of deal selection & the investment instrument. A new investment instrument is required to enable faster investment cycles while also ensuring capital protection. Revenue has become a very important metric while evaluating Companies, and soon EBITDA will follow, which is important for Startups raising growth rounds. Though, in spirit of safety, one shouldn’t forget that product driven Startups have a longer time to revenue , VCs should continue fuelling ideas building for the future. ~ Open AI wouldn’t have be able to snowball this AI Revolution if initial capital wasn’t available

In the venture capital world, downturns are not dead ends but detours on the path to success. Adapt by staying informed, diversifying investments, and doubling down on due diligence. Support your portfolio to pivot and innovate, emphasizing value creation and financial health. Cultivate resilience—both personal and professional—by learning from the past and preparing for recovery. Remember, the most ground-breaking opportunities often emerge in challenging times. Navigate the storm with strategic foresight, emerge stronger and ready for the upturn.

Venture Capital = Risk Downturns are expected and are OK if you mantain the appropriate level of transparency and fairness: - Transparency is key to all stakeholders. Don`t be that guy. - Hesitation is more harmfull than wrong decisions. - Turnaround stories can be as powerful as pure growth stories. It shows resilience and tenancy, key factors for a succesfull VC strategy.