Imminent monetary policy easing is a tailwind for venture capital

I’ve written previously about the difference between tactical and strategic approach to venture capital allocation. One must remain consistent through market cycles in order to not miss great vintages that only reveal themselves several years after investments are made.?

Admittedly, it became difficult even for the most committed and disciplined venture champions to stay active as they found themselves illiquid in the last couple of years. Yuliya Chernova calls out in this WSJ article the ratio of capital called to capital distributed at a record 4.5x at the end of 2023 vs. parity in the years immediately prior.?

The widely anticipated change in monetary policy brings hope for those who’ve felt locked up. Based on historical precedent, lower interest rates will bring a reopening of the M&A and IPO markets. According to a recent KPMG M&A deal market study, 64% of surveyed corporate and private equity dealmakers say that only a .25% or .5% decrease in interest rates will drive significant transaction volume and most are gearing up for increased activity into 2025. This shift will unlock liquidity for long-established venture investors and benefit venture-backed companies with 2-5 years of responsible revenue growth.?

At times, I feel there is too much headline drama surrounding the possible “end of venture.” Markets go up and down, and in long-term asset classes focus and consistency of execution win. We may not see 2021 valuation levels or 15 years of near zero interest rates (both unnatural states), but that doesn’t mean technological progress stops and big problems don’t need to be solved. Patient early stage investors will be rewarded with plenty of future economic value for which irrational market conditions are not required.

That said, sentiment towards venture has suffered in the last two years. The good news is: imminent monetary policy easing is an important step in pulling us out of the VC sentiment and exit slump.?

??If you’re a new investor, this is a good time to start building a strategic venture allocation by partnering with emerging managers and becoming a fund LP. Capital committed today will be called and invested over several years, creating a diversified portfolio of companies and vintages.?

??If you’re an experienced LP, you’ll come back as soon as you can because you’re already executing a strategic allocation framework and because other investment alternatives will have run up by the time you get investable cash.?

???If you’re a founder, keep solving problems that represent a huge risk for your customers if left unattended. And reach out to me if you happen to be doing that in enterprise fintech.

#fintech #startups #founders #riskmanagement #risk #enterprisefintech #data #vc #venturecapital Altari Ventures