With the global economy on the brink of a recession, venture capitalists have adjusted the criteria and characteristics for what they look for when investing in startups. Economic downturns can in fact be an opportune time to invest in laser focused teams that can scale during a bull market. While Swiftarc Ventures sees the recession as an opportunity, it has adjusted what they look for when choosing potential portfolio companies. Here’s what Swiftarc is prioritizing when conducting diligence.
A Clear Unmet Need
The investment team at Swiftarc looks for companies demonstrating a true reason to exist within the market they are targeting. Brands that address a whitespace in the market, where no satisfactory alternatives exist, have heightened opportunity to fuel the consumer-brand connection via trial and repeat purchases. In addition to finding a clear unmet need, companies need to have disruption potential – this could be applied to areas such as distribution, product, marketing, community building, etc. How can you disrupt your industry better than anyone else can? In addition to a competitive advantage, is the company differentiated through technology, business model, and/or product offering? And finally do customers see value in your service or product. Having these three components are imperative for early-stage opportunities to grow at scale.
Adaptability
Startups and corporations alike have been forced to become adaptable since the start of the Covid-19 pandemic. Now with the recession at hand can they continue adapting? One major area that CPG companies need to prove agility in is supply chain. The global supply chain is still experiencing major holes and delays. Brands that are nimble and well positioned to secure inventory are best poised for success, as consumer loyalty is becoming increasingly tested with continued delays and out-of-stocks. Creating adaptive innovation and a nimble team are also characteristics that bode well when investing in startups during this time. It is a best way to do trading and also to increase the business.
Financial Discipline
Swiftarc is prioritizing opportunities that are focused on sustainable top and bottom-line growth, rather than growth at all costs. Conserving the runway and “adapting to endure” is a number one priority as capital tightens in the private markets. Swiftarc believes that the brands that can survive through this phase at lower revenues, while learning how to best use their capital, will come out on the other side stronger. Having financial discipline during a bear market can save a company from making costly mistakes that could inhibit growth at scale which is needed for a successful investment. Realistic projections and valuations also fall under financial discipline. Do the numbers add up to what is currently being generated and taking the market into consideration?
Swiftarc has a positive outlook on the upcoming recession as these are the times that the best of the best make it through the otherside. Meaning the return on investment can be much more fruitful when investing in winners. Some of the greatest unicorns of today such as Facebook, Airbnb, Mailchimp and Groupon were built during the 2008 Financial Crisis.
