Tips for VC investing in Asia during a capital market downturn

AS THE famous value investor Seth Klarman once stated: “The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions.”

The same rings true for the venture capital (VC) market. It does not require a genius to conclude that VC markets globally are frothy. Many argue that the toppy phase of the current cycle began with SoftBank’s US$100 billion Vision Fund in 2017, which introduced an environment with optional due diligence, enormous financing rounds, and deep-pocketed non-VC investors who emerged as fast, and often easy, money. What kept the party going was loose monetary policy and the cheap capital that came with it. This has ended.

Interest rates are rising globally and valuations in public equity markets are quickly correcting, particularly for loss-making VC-backed companies such as Peloton (-91 per cent), Teladoc (-91 per cent), Robinhood (-85 per cent), Beyond Meat (-84 per cent), and Uber (-61 per cent), among others.