Venture Capital and Growth Equity During a Market Downturn
Structural nuances of venture capital and growth equity investing create opportunities during a market downturn. Depending upon the institutional investor type as well as the goals and objectives of the portfolio, investors may rethink private equity allocation diversification in a recessionary environment. Historic private equity and venture median and upper quartile benchmarks suggest the potential for meaningful venture capital outperformance in vintage years following a recession. Compared to buyout strategies, differences could be attributed to lower entry point valuations of venture and early growth equity following an economic crisis, the lack of leverage on the balance sheets of venture-backed companies and the longer expected investment time horizons. Furthermore, in an environment where fewer venture and growth equity funds are being raised following a downturn, well-capitalized fund managers are uniquely positioned to secure investments in attractive company investment opportunities at modest valuations, with the opportunity to realize significant value at a later stage.