As a venture capital fund, we've witnessed firsthand how macroeconomic factors, technological advancements, and shifting consumer behaviors can significantly impact investment opportunities and strategies. Adapting to changing market conditions is crucial for navigating investments during times of disruption however these factors should be considered at the onset of the VC cycle when defining the investment strategy.
Economic downturns, geopolitical tensions, and regulatory changes can all create uncertainty and volatility. In the CEE market, startup funding fell significantly in 2023 with a 68% decrease compared to the previous year. This decline was more severe than the 38% drop seen across Europe as a whole (source: Sifted)
The reduction in VC investment in CEE was attributed to a pullback from private VCs and decreased public funding support for startups, particularly in Poland and Hungary. In Bulgaria, the expected public funding for 2024-2025 will also be less than in previous years.
Therefore, we must closely monitor market trends, analyze data, and adjust our investment theses accordingly.
Here are a few tips for navigating investments in changing market conditions:
Diversifying the Portfolio
To mitigate the risks associated with market disruptions, we emphasize the importance of portfolio diversification. By spreading our investments across different industries, stages of growth, and geographic regions, we can reduce our exposure to sector-specific downturns and capitalize on emerging opportunities in other areas.
Our portfolio is focused on a few key verticals such as FinTech & Blockchain, AI,
Shared Economy & Platforms and IoT & Big Data.
We also show interest in, Robotics, Biotech, Cyber security, Cleantech, and VR & AR.
Identifying Disruptive Micro Trends within Verticals
Another crucial aspect of navigating investments during times of disruption is the ability to identify and capitalize on disruptive trends. Whether it's the rise of artificial intelligence, the growth of the green economy, or the transformation of traditional industries, we must stay ahead of the curve and recognize the potential of innovative startups that are poised to disrupt the status quo.
In our focus verticals, we are particularly excited about the following disruptive trends:
FinTech & Blockchain: The emergence of decentralized finance (DeFi) is reshaping the lending landscape and providing new avenues for yield generation. We are also closely monitoring the integration of financial services into non-financial products through APIs.
Artificial Intelligence: The application of AI-powered solutions for enhanced decision-making, process automation, and personalized experiences is transforming a wide range of industries, from healthcare to transportation. We aim to identify startups that leverage this technology to solve complex problems.
Shared Economy & Platforms: The rise of platform-based business models is disrupting traditional industries, enabling new modes of service delivery and value creation. We are particularly interested in the convergence of the gig economy and borderless payment solutions.
IoT & Big Data: The proliferation of connected devices and the exponential growth of data are enabling new business models and revenue streams. We are excited about the potential of IoT-powered solutions to optimize operations, enhance customer experiences, and drive sustainability initiatives.
Navigating the Regulatory Landscape
The venture capital industry operates within a complex regulatory framework, and navigating this landscape during times of disruption can be particularly challenging.
The main challenges for investment firms in Bulgaria appear to be sailing through the complex regulatory landscape, meeting capital adequacy requirements, managing tax implications, complying with AML/CFT and consumer protection regulations, and accessing deal flow through ecosystem relationships.
The Bulgarian VC ecosystem is still in its early stages, despite having multiple generations of funds in the market. Public money schemes play a crucial role in boosting the local VC ecosystem, however, they come with certain limitations that need to be addressed in the future e.g. investing in local companies, FoF mandate restrictions in investment concentration, etc.) Changing those restrictions will enhance the competitiveness of local fund managers.
In conclusion
Navigating investments in disruptive times is a multifaceted challenge, but one that presents significant opportunities for venture funds willing to embrace the complexities. By diversifying our portfolio, identifying disruptive trends, and managing the regulatory environment, we continuously try to capitalize on the transformative potential of emerging technologies.
In Bulgaria, the regulatory landscape and evolving market conditions add an additional layer of complexity. However, by deeply understanding these nuances and proactively addressing the associated challenges, we can unlock the vast potential of this dynamic investment environment. At NV3, our role is to guide our portfolio companies and investors through the turbulence of disruption, fostering innovation and driving growth.
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