Showing posts with label Fund Raising. Show all posts
Showing posts with label Fund Raising. Show all posts

Saturday, March 7, 2015

The Negative yield ecosystem

   In the Fynbos shrub lands of South Africa, an occasional forest fire is essential for survival of majority plant species there since their seed is released from its woody encasement only after being burnt (obligate seeders). By analogy, the on-going negative yield inferno that’s rapidly destroying investor wealth too may crack open a few seeds of hope and redemption - The core assumption of a fiscal conflagration ecosystem.
Unlike in a natural phenomenon though, any positive outcome from this dismal fiscal scenario has to be necessarily a derivative of human behavior in face of risk. The Prospect theory explains this when it says ‘the decision makers will be risk averse when choosing between gains and risk seeking when choosing between losses’ – This could mean the investing universe over next few months (& once the ECB buy-back bubble in 2016 too is suitably burst…) would stop sinking more money in government, sovereign bonds and look at riskier options like equity that don’t at least start with a chilling promise of sub-zero return – many articles like herehere & herecovered this possibility quite convincingly.
But again, just as forest fire burns down dry tinder first & then progressively dehydrates and engulfs vegetation that was relatively less-drier & safer before, the investors’ new found appetite for risk gradually could expose the relatively self-correcting equity and other asset classes to the risk of long-term under performance. While this eventuality may not be completely unanticipated by the investing junta, the reason why they’d still ignore it in the shorter term once again is explained by the prospect theory’s ‘reference level dependence’ characteristic, whereby a poor performance of a much riskier equity investment would still look eminently better than a known negative yield of a bond.
So if it isn't even equity, what seeds of hope would crack open?
In their quest for the feel-good investments, it is likely the investor interest in PE will spike in the short to longer-term. This expansion of the PE pie will of course be helped by its historically steadier IRR as compared to other asset classes (@ annual return of 15% calculated across 10 years)
While any such incremental flows into the PE may still be a blip compared to what’s at stake in traditional asset classes, considering the critical nature of capital availability in building/ growing companies that’d eventually feed the future equity market, I’d think Private Equity in its glow of new found investor love will turn out to be the quintessential seed that’ll regenerate the fiscal ecosystem.
Well it just might be that the hot winds of negative yields could prove a windfall for the VCs & FoFs currently raising funds.

Monday, July 22, 2013

The start-up investing winds, they are a-Changing OR are they?

In his latest, 'SuperLP' Chris Douvos  writes about the fears of an impending VC apocalypse....., okay to start with, in silicon valley primarily triggered by the capital deployment in start-ups far outpacing funds raised by venture capital firms, essentially affecting that someone else is gaming the system rather than VCs themselves..

Given they appear only once in a blue moon, I couldn't really let go a SuperLP article without a comment... here goes what I posted on his article 'Scents in the Air'

My comment

Murali Apparaju

I am wondering if the issue with "capital raised by VC's increasingly falling short of capital invested into start-ups" is about true of all start-up hubs & not just Silicon-valley AND, that probably in general it’s true of all VC activity across the globe (tho' i do understand this data is of NVCA and for USA)

Out of the entities you mentioned, I see the following two as the key contributors to this skewed ratio;
1) CVC: The emerging aggression of CVCs whose enthusiasm to invest is in equal measure helped/ influenced by not having a limitation of capital to deploy AND by their necessity to shortening the product introduction cycle in face of an increasingly unproductive in-house innovation (think... a top-10 pharma major investing in start-up biotech with just one pre-clinical asset....)
2) Angel: The recent market regulatory changes indicate (JOBS et al) that the government is attempting to bring down the dependence of start-ups on the VC's - primarily by way of increasing the available angel base & encouraging HNWIs to risk their money a lot more freely than before.
Surely the above aspects do suggest why there's a scent of fear in the winds blowing through VC quarters.
I personally feel that these newer sources of capital need to establish their longevity & consistency before the start-ups can forget about serenading the VC for funds – particularly given that non-financial companies tend to be a lot more impatient with IRR cycle-times and HNWIs a lot more prone to gravitate towards less complex and shorter-term alternative investment options.
Essentially, IMHO what goes around comes around & VC as a source of start-up capital would remain a lot more relevant in the long-term