Impact of Latest Macroeconomic Factors for Venture Fund Investors
Private markets face numerous intersecting headwinds: growing volatility, geopolitical uncertainty, inflation, rising interest rates and more. These events have led to large drops in market valuations of many startups and difficulties raising new capital in follow-on financing rounds.
These challenges have sparked concerns among portfolio managers that venture capital funds will be highly impacted in this stressed market environment.
How can venture capital investments mitigate risk and maximize returns in a stressed market?
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Lifetime TVPI benchmark adjustments for VC funds
CEPRES model adjustments focus on historical data, especially from the dotcom bubble of 2000/2001. While the market is very different now than it was over 20 years ago, there are many similarities that we can use to analyze and stress-test the current situation for venture capital markets. Based on this analysis, we find two focal points of adjustments for our forecasts: a reduction of lifetime return expectations (TVPI benchmarks) for certain vintage years and a partial deferral of the expected distributions in the next three years.
Adjustment of distributions for the years 2022-2024
Based on these historical figures, we’ve reduced our VC distribution expectations for the years 2022-2024 in our upcoming portfolio simulations. Reducing distributions in these years means, in effect, that expected distributions are postponed to later years and hence does not alter overall expected distributions. However, in combination with the reduction of benchmark TVPIs, we decrease both, the overall expected distributions, and especially the expected distributions during the next three years.