Phoenix American investigates venture capital in light of COVID-19 challenges
21 July 2020 California
Image: Rawpixel/Shutterstock
The venture capital industry should concentrate on their existing portfolio companies to successfully navigate business during the ongoing COVID-19 pandemic, according to a new report by Phoenix American.
The fund administration provider for alternative investment funds published a white paper analysing of the impact on venture capital of the first four months of the pandemic, and assessing the outlook for the remainder of 2020.
The whitepaper cited that before the pandemic, conditions were already changing for venture capital, with particular concern for the late stage economic cycle as deal and exit flow began to stall in 2019 with a year-on-year decrease of 16 percent.
It also highlighted that economic downturns are historically succeeded by a reduction in aggregate deal volume, capital investment, and deal size, while term sheets and due diligence processes are changing in response to greater investor protection during a time of increased risk.
However, Phoenix American also emphasised that companies can mitigate these effects by focusing on their portfolios now, and explore investment opportunities in remote work and IT solutions, especially in health tech and fintech sectors.
The report concluded by highlighting the need for fund managers to have the ability to respond operationally to major economic disruptions in terms of fundraising, cash flow, and deal acquisition supported by a versatile back-office infrastructure.
Andrew Constantin, senior vice president of operations at Phoenix American, summarised: “The economic disruption of COVID-19 has forced venture capitals to make rapid changes in the way they operate.”
“A flexible and robust administrative infrastructure that is able to adapt to the needs of client funds in a time of crisis removes an element of risk and distraction, and sets up managers to endure and succeed.”
The fund administration provider for alternative investment funds published a white paper analysing of the impact on venture capital of the first four months of the pandemic, and assessing the outlook for the remainder of 2020.
The whitepaper cited that before the pandemic, conditions were already changing for venture capital, with particular concern for the late stage economic cycle as deal and exit flow began to stall in 2019 with a year-on-year decrease of 16 percent.
It also highlighted that economic downturns are historically succeeded by a reduction in aggregate deal volume, capital investment, and deal size, while term sheets and due diligence processes are changing in response to greater investor protection during a time of increased risk.
However, Phoenix American also emphasised that companies can mitigate these effects by focusing on their portfolios now, and explore investment opportunities in remote work and IT solutions, especially in health tech and fintech sectors.
The report concluded by highlighting the need for fund managers to have the ability to respond operationally to major economic disruptions in terms of fundraising, cash flow, and deal acquisition supported by a versatile back-office infrastructure.
Andrew Constantin, senior vice president of operations at Phoenix American, summarised: “The economic disruption of COVID-19 has forced venture capitals to make rapid changes in the way they operate.”
“A flexible and robust administrative infrastructure that is able to adapt to the needs of client funds in a time of crisis removes an element of risk and distraction, and sets up managers to endure and succeed.”
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