Working with numerous portfolio and pipeline companies in the past few weeks has given me valuable insights into how companies and investors first reacted to the current crisis and then adjusted their medium-term strategies accordingly.
In this blog post I will summarise my key learnings, dividing them into three sections:
- Economic Context
- Corona Action Plan for Businesses
- Fundraising in Times of Corona
Despite the impact of the Coronavirus on society, mainly people’s health and well-being, we now start to experience the economic impact: Companies fearing bankruptcy, volatile stock markets and increasing unemployment rates. The Financial Crisis (2008) was the last recession we experienced. It lasted for about 18 months. Looking back, it had large impacts on the global economy, however, it also led to more than 10 years of economic growth. Drawing conclusions from the Financial Crisis on the severity or length of the current crisis is difficult as the Corona-crisis is not an endogenous or “market-made” crisis.
Currently, we are facing a crisis that was caused by an exogenous shock – a global pandemic that nobody could have foreseen. This shock can translate into a recession when temporary revenue cuts and losses turn into long lasting financial distress for companies. As a reaction, companies would have to let go of employees, close stores or offices and cut other expenses, which leads to high unemployment rates, low purchasing power and, therefore, low economic activity. Whether this current crisis will turn into a recession or not remains yet to be seen and largely depends on how well companies can absorb the current losses, how effectively governments support companies in distress and how fast there will be a “solution to the shock” (e.g. treatment/vaccine to limit the harm of the Coronavirus).
Long story short: It will pass! Economic theory and historic data tell us that every recession is followed by an expansion phase. However, keep in mind that nobody knows how long it will take until economies recover from it and when/how soon we will experience growth again.
In the meantime, your goal should be to keep the impact on your company as low as possible and make it through the crisis!
Continue to the next page and check out the Corona Action Plan for Businesses to learn more!