Changes in Investment Opportunities

Changes in Investment Opportunities due to COVID-19

There has been a significant change in the purchasing patterns and social behavior of the consumers due to the COVID-19 pandemic. The new social norms like social distancing due to health related concerns and the lockdown restrictions mandated by the government had consumers turn towards the e-market and e-commerce website.

investment opportunities

COVID has provided at-home solutions and purchasing options for both leisure as well as work. The pandemic has opened up new opportunities in digitalization for digital media, e-commerce websites and digital payments especially in the Asia-Pacific (APAC) region. A sudden robust in investment has been seen in the region. Here are the impacts of COVID-19 pandemic on the opportunities in the investment sector and how it has changed forever.

  1. Positive effects on certain sectors:

Before the pandemic started, the healthcare was already boosting in the APAC region and had provided rapid growth opportunities to the venture capitalist and private equity investors. The growth of this sector in this region is driven by more expenses on the health care in countries Southeast Asia and by the aging population in countries like Australia, Japan and New Zealand The sectors like online pharmacy and Tele-health businesses have shown immense growth due to increase in demand from the customers. The private equity in India and other countries in the Asia-Pacific have increased tremendously in the healthcare area.

  1. The emergence of new investment opportunities in various types of deal structure:

 The nature of the available opportunities in investments in different types of deals has also changed due to the COVID-19 pandemic. For countering the challenges of liquidity and revitalizing the business, many business owners are focusing on the core assets of the entity which will push the carve-outs trend a major throwback. This trend will remove the preferred control deals and will create newer opportunities for the venture capitalists and private equity funds.

  1. Some sectors have become an attraction due to lower valuation:

 The reduced valuation of the industry in the Asia Pacific region has changed the investment sector and ways of investment for venture capitalist and private equity completely. The sectors that were more reliable on physical movement of the employees or required social contacts or in-person transactions significantly lost their value due to the lockdown norms in the pandemic. Right now the investors are finding those businesses more lucrative and attractive lacking the strong liquidity cushion and will be forced to be sold at lower than expected prices.

  1. Accelerated the emerging trends in technology:

The rates at which the consumers have been driven towards adopting technological solutions during this pandemic have seen an upsurge.

The competion to be more technologically advanced has presented tremendous opportunities to the investors and venture capitalist. Tech giants in digital payments or e-payment and educational technology enterprises have boosted. The artificial technology (AI) has also provided virtual solution and has become a hot trend in the recent years. The pandemic has only widened its scope.

  1. Scarcity in debt-finance:

It is assumed that due the COVID, the share of debt financing in the capital structure deals is likely to fall tremendously. For justifying higher level equities, stronger investments are required.

  1. New investment schemes have been created due to behavioral shifts:

The pandemic has changed prospectus of certain areas and sectors and have introduced nascent trends in these. For instance, the trend of working from home has become more popular during this time and a necessity for the coming future. Therefore, the importance of connectivity services, apps and cyber security has gained importance too. Especially in the APAC countries, the work from home is not that of a common practice, the rise of these sectors is required to continue safe working methods for employees as well the employers.

  1. Division gap between winners and losers is likely to widen:

The companies with uniquely set up model and are positioned differently are becoming more attractive to the private equity and venture capitalist investors. For instance in India, over the past few months the private equity investments has increased especially in the digital services sector.

  1. Holding periods are likely to get longer:

 The pandemic has affected the holding period regarding the exit strategies and will increase. Due to lower value, many entities will attract investors and venture capitalist to take-over the firms. Also, in already invested companies the funds will be required to rethink their exit strategies. The exit strategies for private equity firms and venture capitalist will be changed too.

Preparation to be made by private equity and venture capitalist:

The following methods must be used by the investors to maximize the success rate and get better returns on the investment-

  1. Not wasting the opportunities during the crisis:

The venture capitalist and funds must be ambitious and ready to act and invest in areas where opportunity seems to be prevailing. The pandemic has created so many channels for the investors to grow at a rapid rate with higher success rates. It just requires keen eye from the investors to actually grab such opportunities.

  1. Building newer team capabilities:

In the post-COVID world, the companies are required to make changes in the operational system for increasing the valuation. For this, the investors and venture capitalist will be required to identify the gaps and then determine methods to fill these gaps by using external expertise and internal resources.

  1. Practicing initializing of best crisis management:

The funds and investors are required to set proactive measures that extremely strong against the ongoing pandemic for growth and development. The businesses must learn to stand strong for such crisis in the future as well when the pandemic gets over. Therefore, strong crisis management and practices must be enforced for safer future.

  1. Digitalizing for due diligence and deal sourcing:

The markets in specific regions like APAC are required to upgrade and leverage their digital sources and tools for better scanning of the market. Digitalization can be beneficial for sourcing the deals and the process of due diligence will be eased as well with more possibility of checking the data and information. This can be an advantage for the venture capitalist and private equity.

Digitalization is one of the main reasons why venture capital in India increased during COVID pandemic.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.