Turning Tide
Market screens are turning red, but we will come out better, as always
Throughout my three week trip in Europe I stayed abreast of market developments of course - it is irrelevant where I am really - but being back home makes it more impactful somehow. The crypto collapse was not something unexpected, in every way it mirrors the internet boom: the fluff and crap will disappear, but the core foundation stands and will come back stronger. It is what I have been saying all along and given that relative uncertainty I never invested in any of these decentralized digital currencies. It was hard to determine what was real and would survive the eventual meltdown. Of course that did not stop people from approaching me with ideas and business plans, the best ones were random people coming up to me at conferences and saying: ‘Pieter, I know you are very active in the bitcoin world” Really, where do people get it from ? This sort of stuff just tells you how crazy it all was, it is a pity that not everyone was able to see that.
The crisis is of course widespread: tech in general is taking a big hit and even traditionally safe dividend stocks are being routed. Real estate will cool a bit and find a new direction. Repricing is in full swing while interest rates are being jacked up and energy and food supplies are getting tighter. It of course trickles down to the private markets and in a way I am quite relieved about it: it is the end of ridiculous valuations and aggressive deal structures. For those intimately familiar with seed stage investing: we will hopefully see the end of the SAFE. It was a ridiculous concept to begin with, designed by and for overheated markets which is why most companies in Canada should never have been adopting them in the first place. Back to basics, please.
It all takes time. That is what I say in most of my talks. It will take longer to recover and find a new equilibrium before we can start another boom period because (a) interest rates remain on the upswing and (b) governments have to tighten spending and re-allocate budgets. Investors will take a step back and wait and see, at best they will be selective and take longer to write cheques. But the need for innovation remains as strong as ever: energy constraints, food issues, supply chains in general and of course security (war) and health (another pandemic) all force us to keep finding better and smarter ways of doing things. So stay away from consumer type deals, the ‘on demand’ servant economy is in deep trouble as Sarah O’Connor convincingly argues here. Investors will indeed stop subsidizing some business models for a while.
And when I argue time I always refer to my first real angel investment, I was indeed even a co-founder at Actenum which is now 20 years old. I was so excited to hand them the Greg Smith Award last week. An award that honours true grit where investors and founders go deep and collaborate through the best and the truly terrible times. The company develops advanced scheduling software for the natural resources industries, so you can imagine the up and down cycles it went through, almost dead in 2008 and now on top of the world in 2022. Great article from our friends at Vancouver Tech Journal about the award and the company here. Enjoy.
Photo: the market in Kraków, Poland two weeks ago. Great fruit, but also excellent breads and cheeses.