Emerging from the Pandemic?

The science tells me that we will not be out of the new world of dealing with respiratory disease capable of killing significant percentages of the human population any time soon. In some sense, the cure to the COVID viruses and their evolutionary progeny is as illusive as the cure to the common cold, which is very much the same sort of thing. They are both classes of corona viruses, evolve rapidly, and are pandemics.

So if we aren't coming out of this any time soon, and variants are more deadly and spreading faster (for a while), that means that the vacination programs will not completely solve the problem, and we will be getting more and more vacines over time, booster shots, and it will end up like influenza with annual or more frequent shots, more deaths, and more residual disease implications.

It also means we will likely be in the PPE game for a long time, and that the businesses that succeed will, in many cases, be different than the ones that succeeded before the pandemic.

But which ones?

There's the rub... Picking winners has never worked for me. I can pick losers in many cases, but that's not the same thing. It's easy to identify companies that are likely to fail. Bad management, bad market, bad legal situation, no sales, no market understanding, nothing unique, etc. Pick 1 and you are questionable, pick 2 and you are in trouble, pick 3 and you are likely to fail. Of course we help grow companies, and this often involves fixing things that are broken. People able to adapt are key to success.

But as markets change, the ability to evolve becomes more important, and in times of large changes in the markets, survival depends on a lot more than not having major problems. It requires an understanding of the environmental changes and internal adaptation to them.

While we look for companies who understand this, there is a lot going on, so I thought I would discuss some of the ways I look at these things to help inform you of how you might look at them as well.

Circumstances

But so what?

As an stock market investor, I know I can buy Campbell's soup and when to do it. But that doesn't help me as a startup investor. The problem remains, which of the now even more companies in the travel industry (because I just told them all it's their time coming up - and they knew it anyway) should I invest in?

And there lies the rub.

Macro-economic factors effect macro-sized entities and micro-sized entities as well, but with more micro-entities in the market as the market rises, the problem of picking winners gets even harder.

In the public markets, you can bet against companies instead of for them, and of course that means you can take the opposite view of investing by shorting things that are likely to go down instead of inveting in things that are likely to go up. But in the early stage private equity markets, there are no shorts and puts and takes and so forth. There is a strict alignment of interests. If the investment is in a successful company you (may) win. If not, you fail.

The anti-trend

Investing in companies that aren't so much trendy but have legs is another approach that I prefer. People chasing bitcoin, as an example, seem crazy to me. But people selling cryptographic capabilities using blockchain back ends for other purposes make sense. They are providing an attestation infrastructure that is higher surety in many ways than the alternatives available today, and they have a serious potential for social benefit. And they will sell whether bitcoin goes up or down, and whether bitcoiin even survives the year (it will eventually fail of course, but like tulips, it will have its run, even though tulips at least look nice).

Diversity is the other key here. If you are going to invest in distributed ledger infrastructure (e.g., blockchain), don't try to pick one winner. If you do, you may win and be a hero, but odds are very good you will lose and be a zero. I prefer to diversify my portfolio and win statistically. As Randy Williams (Keiretsu Forum founder) says, we're going for singles and doubles. Every once in a while we get a tripple or a home run, but the idea is to win enough to survive the losers and come out ahead. In the case of this sort of invetment in griups, ahead translates into 24% IRR.

How does this help your startup?

Private equity market trends are driven by psychology of the investors. By understanding their thought processes you can help identify who to ask for invetments, when to ask them, and you can decide to pivot, at least in the way you present your company. Don't get me wrong:

A pig with lipstick is still a pig.

Many pivots are not just pigs trying on different lipstick. They are legitimate improvements, taking into account what they have and how the markets change, they can use most of what they do well and augment it with somethings they need to succeed.

Pivot in the pandemic

A pandemic is actually a great time to make your pivots. Nobody is expecting perfection, lots of companies are failing, and if you survive and bring new opportunities, it's all the better.

Angel to Exit has made some pivots over time - not big ones, but important ones - and they have accumulated to make things a lot better for us and companies we work with. Here are some examples, some during the pandemic:

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In summary

As we emerge from the pandemic (over the coming months and years) opportunities are expanding rapidly. You can follow the obvious trends for quick gains, or you can buck the trend and find the real long-term opportunities and grow them. But don't just sit on the sidelines, because the world will pass you by.

Copyright(c) Fred Cohen, 2021 - All Rights Reserved