“When Others Are Fearful…”

David Coats
Apr 2, 2020 · 4 min read

Warren Buffet famously stated that he actively seeks investment opportunities in times when others are fearful.

Given the understandable fear in our world right now in the face of this global pandemic, we wanted to find out empirically whether or not his wisdom applies to U.S. venture capital investing.

To answer this question, we analyzed our industry-leading database of U.S. venture financings and outcomes, as described in earlier blogs, and public data. We focused on the two most recent major shocks, both of which my co-founder Trevor Kienzle and I lived through as VCs: the Dotcom Bubble Burst followed by the 9/11 Terrorist Attacks (which we’re considering for this purpose as a single shock because they were so close in time), and the 2008 Financial Crisis.

In both cases, the stock market and U.S. GDP growth tanked, sending the country into recession. In the U.S. venture market, not surprisingly, total dollars invested, the number of financings, valuations, and the number of new companies formed dropped precipitously.

In retrospect, was the year immediately following these shocks a relatively good or bad time to be investing in the U.S. venture market?

The graph below plots the percent change in realized multiples and other statistics for the year immediately following, versus the year preceding, each crisis.

As illustrated in the bars on the far right, the Sage of Omaha’s wisdom appeared to have served those investors well who continued investing during the years when others were fearful.

Realized multiples for all VC investments, including investments in first institutional rounds, increased significantly immediately following both the 9/11 Terrorist Attacks and the 2008 Financial Crisis.

As another illustration of this fact, the graph below plots dollar-weighted realized gross multiples for all investments made in each financing year from 2000 to 2011. The red arrows point to the years in which 9/11 and the 2008 Financial Crisis hit. Notably, these events occurred late in the year (September) in both cases, so the returns for the subsequent year are the best indicator in this annual data of the returns to investors who invested through the crises.

As you can see, realized returns shot up in the years following the crises. Why has this been the case?

Our hypothesis is that higher returns following shocks have resulted from a combination of factors, including more attractive terms for investors, unique business opportunities resulting from the large shifts in society created by the shock, greater discipline and capital efficiency in venture-funded teams (that is often sustained well beyond the market recovery), and perhaps a smaller set of quality entrepreneurs and investors who are able to raise and thrive in such an environment.

The historical fact that venture returns have increased following recent crises is, of course, no guarantee that we will see the same result following the current global pandemic and pending recession. Every “black swan” is unique. However, we believe the data suggests that it’s a better bet than the opposite.

Like many of you, we at Correlation Ventures are living through the tremendous challenges faced by entrepreneurs and VCs in this market. This environment, of course, creates large opportunities for some companies, while others are focused on survival, doing whatever they can to extend cash runways to get through the crisis.

We believe that innovators in the venture ecosystem are likely the best chance we have to quickly identify diagnostics and effective treatments and vaccines for this virus, as well as to offer effective solutions to enable us to best adapt to a changing world.

In the face of the current fear, we hope that the statistics above will provide some added impetus to all in our ecosystem — VCs, LPs, and entrepreneurs — to continue to actively invest and innovate through this crisis. The world has perhaps never needed us more.


Correlation Ventures is the predictive analytics pioneer in the venture capital industry and the industry’s leading co-investor. With more than $360 million under management, we’re one of the most active U.S. venture investors, investing in about two to three new investments a month. Over the last five years, we’ve invested in over 185 companies. Selected portfolio companies include: AlienVault, Bluevine Capital, Galera, Imperfect Foods, Lever, Manticore Games, Optimizely, Personal Capital, Sun Basket, Synthorx, and Upstart. Correlation offers a dramatically better option for lead investors, syndicates, and companies seeking additional venture capital to fill out a round. We offer the most rapid, convenient, and reliable source of co‐investment capital in the industry; for example, committing to make investment decisions within two weeks or less. Correlation is backed by leading institutional investors.

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store