We sat down with our Partner @ Greg Bennett to discuss investing during a recession. Read his musings below:
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch
Venture investments made during recessionary periods can deliver some of the best venture returns, as they benefit from lower valuations and arguably, from Founders whose business models are more robust and capital efficient.
Data from the US venture market (the world’s largest), shows that investments made by venture funds during the GFC recession (the deepest recession since World War II) delivered an average IRR of 21.2% — 1.9x better than those investments made during the 5 years preceding the recession.
It is worth remembering that although downturns can be headline-grabbing, they are also an opportunity for long term investors, and Venture Capital — by its very nature — is long term.
When investing in a Venture Capital fund, money is committed upfront, but not drawn down for several years, with divestments typically not for several more. This phasing of drawdowns and realisations over time, can help limit the perceived risk associated with timing.
Hence we are excited for Conviction Fund II.