When the economy and markets had been massively beat up in the great recession, there was a period of time when credit and private business funding massively withdrew. It was a rough time for business, especially the venture-backed or would-be venture-backed, where capital flows didn’t stagnate due to the long-term fund manager’s pessimism as much as the limited partner’s massive short-term hit across the diversified portfolio.
The warning signs are starting to show up again this time…
… and it seems unlikely that these early signs will abate and then reverse anytime soon, particularly as the economic impact on the unicorns is unclear (and probably unstable)…
… and the extent to which software businesses are immune to social distancing remains generally to be seen.
There will be coordinated fiscal and monetary response, as there were in 2008 and subsequently for some time, and the markets and economy will recover, as markets and the economy always do.
The questions now, however – how long will that take, which market pockets will bounce fastest, which economic areas will rebound slowest, how will that domino into other areas, how will that impact business cash as we head there – all asked when there is so much still unknown (maybe even unsuspected at this time), and while the value of portfolio positions may not be there to cushion undesirable answers.
The LPs and their constituencies will figure these things out, but in the meanwhile their investments or presumed investment targets will have to manage their way through. Which will take careful planning.