After the appearance of the current pandemic, which can be considered as the famous and feared ‘black swan’Global capital markets have suffered substantial losses in recent weeks. Although it seems that the American markets have recovered significantly. This situation has made it possible for the risk-return ratio is attractive again, in general, and that logically there are currently good short-term investment opportunities in traditional markets.

The IPOs will be delayed and even, in some cases, ‘sine die’ could be suspended. Investors will obviously increase their risk aversion and reduce their ‘appetite’ for financing projects with potential significant initial losses in the name of growth.

According to the respondents, throughout this year a reduced demand on alternative assets around 25% for the private investor that lasted between 6 and 18 months. On the other hand, for the professional and institutional investor, who usually anticipates decision-making, begins to see the light at the end of the tunnel and it is expected that in 2020 the percentage allocated to alternative assets in their portfolios will increase, reaching investment levels prior to the crisis at the end of the year.

This fall in the demand for alternative investment will, in our opinion, have a triple effect, and not always a negative one:

The substantial divergence between value and price that we have experienced in recent years (especially significant in some specific sectors), will tend to adjust.
The amounts of the investment rounds will be reducedAt least 12%, but depending on the phase or stage of the company seeking to finance it, we can see it sharpen up to 25%.
The premoney reviews, an aspect of great concern, and for conflicting reasons, to businessmen and investors, will be reduced. According to our forecasts and our models, we are going to see adjustments in the valuations between 11% and 33%.

Now more than ever, it is important before investing, to make a good analysis ‘Top-Down’ by country, sector and sub-sector for, later, in the analysis ‘Botton-Up’. In this way, understanding in detail the business model, the monetization and the evolution of metrics and for this, in the environment of extreme volatility such as the current one, we will be able to identify good investment opportunities.

All investors are currently analyzing the sectors that will emerge stronger from this health crisis and which will be harmed. It is evident that the investment flows in the listed markets will be directed towards four main sectors of activity: health, logistics, media and software. However, in our opinion, in order to make investment decisions, it is advisable to be patient, avoiding short-term visions that may prevent us from seeing opportunities that will undoubtedly appear in more depressed sectors today.

Also, from the promoter’s point of view, the planning of the rounds or market outings that previously needed a minimum of 6/9 months for their correct development, according to our forecasts, will now require a minimum of 50% more time to be covered. .

A decade full of challenges awaits us, but also opportunities, from an analytical and practical point of view. Let’s try to see these great changes that are going to take place as something enriching, because otherwise we can stay ‘out of the game’.

Francisco Mariscal

Fellow Funders CEO