When it comes to navigating volatile market fluctuations in the world of Venture Capitalism, the question that is constantly asked is how do we balance risk vs. reward. In my work as a Venture Capitalist with Parabellum Capital Strategies Ltd., navigating trends and fluctuations is a daily occurrence that my team must consider in order to find success. Today I will be sharing my thoughts on what it takes to stay constant and successful in the industry when markets are rapidly changing.
At Parabellum Capital Strategies the first step we take with any new client is completing a full risk assessment. Evaluating all aspects of your client will create awareness of potential risks that can affect investments and growth. During the risk assessment process Parabellum looks at market risks, operational risks, product risks as well as financial risks. By having a clear understanding of the weak points in an organization or the changes in consumer behavior, we can update business models to diminish risks that may occur. It’s imperative that there aren’t any surprises when it comes to your investments. Focusing on the elements that you can control will help mitigate the damage that market changes could create.
Another tactic that venture capitalist firms find effective is creating portfolio diversification. Spreading investments across various industries, stages and geographical locations reduces risk. It is important to note that the quality of your investments is what matters, not the quantity. Having a diverse portfolio creates balance among your investments so if something falls through the cracks there is always a safety net to still generate returns. Speaking of safety nets, cash reserves are one of the most important protections that industry professionals have in place when facing market downturns. Having a significant cash reserve means that when the market dries up you have the flexibility to continue to navigate without making desperate moves when it comes to your investments.
When everything is changing around you, your long term vision is important to hold onto during times of uncertainty. Venture capitalism is about playing the long game. Resisting the temptation to react to short term market fluctuations is what can put you and your clients ahead. Impulsive reactions to market fluctuation rarely result in long term satisfaction and progress. Stay committed and continue to invest in areas that you know can provide growth. This is where the balance between taking risks and having consistency will pay off.
Don’t forget about the power of networking. In tough financial climates turn to your network of leaders, investors and industry professionals for advice and insight. Having a third party observer can help find solutions that you may not be able to see from the inside. Utilizing your network will keep you informed on what investments and tools are performing well in the current climate. Partnerships are another effective tool to use to help balance risk. Syndication allows firms to share risk with other investors. By having more eyes on an investment you can benefit from different perspectives and it will naturally create checks and balances to mitigate risk.
Risk and market fluctuations are a major player in the industry. Learning to use them to your advantage is what creates strong returns and longevity when it comes to your investments and growth. Don’t let short term performance hinder your success – by keeping focused on the long term goal and staying informed you can be in control of risk even when the market is always changing.