Investing in crisis
It’s back. The biggest sell-off across global markets in 2008 is still fresh in our memory, and here we are facing an escalating crisis again. The coronavirus pandemic is driving the world economy into a recession — what does it mean for the equity crowdfunding investor community worldwide?
These days, any businessman would cringe at the words “any crisis is an opportunity”, but hey, this saying nonetheless hasn’t lost its grain of truth. In other words, crisis is anything but business as usual. You’re especially lucky if you’re coming to it with full pockets. And then, to be well-prepared is truly the key. For sure, there will be new opportunities to buy, as valuations will go down. Times of crisis are always a time to develop new products and services. Niche services that were small before may become scalable and quickly take a huge market share.
Only now, we are in completely uncharted territory. No one can say with any degree of certainty when normal business activity will resume or assess the full impact of this demand shock on the economy, let alone on specific companies. However, one can practically consider the opportunities which are rising. And these are the questions we are asking ourselves today.
How will the demand for certain goods and services behave?
During the pandemic (which is far from being over at the time of writing this blog post) some industries have experienced spikes and some severe demand contractions. For example, the services that people can consume while staying at home, like streaming entertainment, food delivery and sporting equipment sales, have become more popular, while demand for traditional retailers’ services has drastically dropped.
Areas like tourism, for instance, apparently became non-existent overnight, but it’s extremely unlikely that such industries, which were deeply integrated in our everyday and business needs, won’t be needed again once the pandemic is over — no, people will still want their vacations and they will want them fast. Retail services like dry cleaning will definitely need to step-up and adjust quickly enough to offer e-commerce solutions and convenient delivery. Some industries — including luxury goods and the automotive industry— might even experience a spike after the hard times are over, as consumers tend to “reward” themselves for surviving such an uneasy period.
And some areas, which were in demand during the pandemic, will experience a drop in a quieter time, as clients will no longer need to stockpile and consume while staying at home so much. They won’t need as many monitors and other IT equipment, or foods with a long shelf life, for example.
So, many industries are most likely to return to their normal state once the immediate crisis is over. However, what will be the shape of the after-crisis demand?
What will be the new normal?
We have been forced to be flexible and change our old habits. Which ones will stay and which will be happily forgotten? For example, we can somewhat foresee that a new habit of shielding ourselves from a potential health threat and, as a consequence, the demand for consumer health and safety products will stay real. With the forced immersion into distance learning and remote working conditions, it can also be anticipated that new ideas in e-learning and collaborative software products will be very much welcomed.
Is it the right time for this specific company?
Finally, we are trying to evaluate our investments in a particular business. Many companies today face the necessity of capital infusion and sometimes decisions must be quickly made. Quickly — but don’t rush it! A company which looked healthy in the pre-pandemic world might not survive these new-born competitive circumstances. Was this specific company among strong leaders before the crisis? Will it be able to face the challenges of changes in customers’ behaviour in the long-term, and is it agile enough to take advantage of such changes?
This involves analysis of all levels of the business. So, for the crowdfunding community, a thorough involvement with due diligence, as conducted by platforms like CrowdedHero, are as essential as ever. There sure are beneficial opportunities for investment during and after the crisis. It is important to have expertise to spot that potential and bring it to investors. Coming from the fields of Corporate Finance and M&A, the CrowdedHero’s team of experts have worked through numerous past crises and have a deep understanding of how companies can either adjust and grow or stumble and die during hard times. This is the knowledge that any investor can benefit from!