There’s been a lot written lately about a slowdown in early stage tech funding by VC’s. At Emerald we don’t see it that way. We believe that today’s investment climate, coupled with the rapidly accelerating developments in science and technology, present excellent opportunities for continued deep tech investing, which may also serve as a very good hedge against current macro climate volatility.
We’ve been investing in venture for 28 years and we have seen this before – the burst of the dot com bubble in 2001, the economic downturn in 2007-2009 and the Covid market dip in 2020. Each provided rich opportunities that, when well evaluated and structured, yielded extremely positive results. We’ve talked about this internally a lot over the past year.
For some, the current market is a wakeup call. Some firms have chosen to reserve capital to support their existing portfolio in a volatile market; some deals are less competitive or compelling and so are taking longer to get done. Some companies should not be funded, and will not find funding.
Tech investing at the early stage should be able to ride out market volatility and, to an extent, can serve as a safe haven against that volatility—and perhaps even inflation. Why? Because early stage venture capital investing is a long hold, realistically at least five to seven years. And because the sectors that we look at should be uncorrelated to the short term and aim to solve longer term problems.
Founders may find the current climate a bit daunting, but they should always exhibit rigor and sound judgment with regard to spending and hiring. That is not bad for business. It simply means being efficient and thoughtful in terms of expenditure.
As companies continue to seek capital – and with the supply of capital decreasing – now may be a good moment to take the time to make better deals. In venture it’s important to be bold enough to look at what’s possible. Some deals right now may be better priced and at a lower value. If discussions take place to ensure those companies are capitalized well enough to operate efficiently without dampening their entrepreneurial spirit, and deals build in or around value creation milestones, we should see a number of winners when the market settles.
