There Are Record Levels of Dry Powder in Venture Capital
The low-rate environment has made significant yield hard to come by for investors, while entrepreneurship could be set for a new surge
Between 2008 and 2012, in the middle of the Great Recession and immediately after, Pitchbook estimates that the level of new company creation in the U.S. more than doubled.
Often is the case following an economic downturn when millions of people get laid off and the need to start a company stops being a luxury or a leap of faith, and becomes a necessity.
While arguably one of the fastest and most abrupt recessions ever, the coronavirus pandemic could also create the perfect storm for venture capital and entrepreneurship.
For one, the pandemic has forced people and businesses to adopt digital technology and habits whether they like it or not because, as we know, face-to-face interaction has been severely limited in 2020.
Traditional retailers have seen their e-commerce and delivery channels explode, prompting heavier use of digital payments. Many office workers have been sent to work in their homes, showing the massive opportunities for work-from-home tools for companies, and people are getting more and more creative in the way they use their homes. These are just some of the sectors ripe for disruption.
That’s the entrepreneurship opportunity. Exciting, though not exactly a surprise. But there is another opportunity — and that’s on the capital front.
The pandemic has sent lots of investors fleeing the stock market due to volatility and economic uncertainty. Meanwhile, when the Federal Reserve lowered its benchmark lending rate to practically zero, it essentially took away any meaningful yield for investors in the bond market.
And commercial real estate is also a scary investment these days, as the future of many commercial sectors such as hotels, office space, and retail looks questionable.
That has made investing in startups in the private markets one of the more attractive segments in the current environment, and one of the few places investors can turn to find returns.