- European venture capitalist Mattias Ljungman has hit major milestones in his investment career during otherwise turbulent times, like the dot-com bust and the 2008 financial crisis.
- Ljungman, who announced that he was starting a new seed-stage venture firm in July, will now do so during the coronavirus outbreak, which has caused stocks to plunge and yields on government bonds to slump to all-time lows as investors prepare for the worst.
- But the new founder of Moonfire Ventures has a playbook to get by in difficult times, tweeting that his three big lessons from these endeavors were “cash is king,” “crisis=opportunity,” and “don’t catch falling knives.”
- Ljungman elaborated on what he meant in an interview with Business Insider, adding that tough times leave behind the best companies because “the tourists leave the market.”
- Visit Business Insider’s homepage for more stories.
European venture capitalist Mattias Ljungman has hit major career milestones during tricky times: he entered the venture industry during the dot-com bust, and raised the first fund for his old company Atomico during the 2008 financial crisis.
His new career transition – leaving Atomico to start a new seed stage fund Moonfire Ventures – comes as the outbreak of COVID-19 has roiled financial markets and turned businesses on their heads.
As Ljungman joked in a tweet, “I started in venture during the 2000 dot com bust, raised first Atomico fund in 2008 financial crisis & now started Moonfire during 2020 coronavirus crisis. My timing is impeccable!”
Venture capital firms are already beginning to tighten their belts in preparation. Sequoia Capital, one of the most influential venture capital firms in the world, sent a memo to its portfolio company founders and chief executives on Thursday, telling them to “brace for turbulence” as the coronavirus and its ripple effects spread across the business landscape.
For the most part, Ljungman agrees that the environment can be tough – but adds that it can also create a lot of opportunity.
“It’s not fun, but it also creates clarity,” Ljungman told Business Insider. “And by the way, it creates a lot of opportunity; the best performance [by companies] can happen in these tougher times.”
Ljungman has three big overarching lessons from his previous experiences:
Cash is king
A large proportion of companies that are going to have an easier time will have ready access to cash, according to Ljungman. That’s because raising money is simply going to take longer.
“People who had money, and were available and present, you know, they’ve probably going to disappear,” Ljungman explained. “And the time to make decisions [to invest] will probably take longer.”
Ljungman predicts that startups new to the tech industry and unprepared for tougher times will flee. And so, for the companies that know how to manage their cash reserves, quite a bit of opportunity exists as the market gets rid of their less able competition.
“Money disappears. And as somebody said to me the other day, tourists leave the market,” Ljungman said.
And those who have capital have the opportunity to ride the crisis, Ljungman said. They can afford to plan for the long-term, hire better people and expand their market share.
This leads to Ljungman’s next point: one man’s crisis is another’s opportunity. And that’s especially the case for startups, which were founded to disrupt old, less-efficient models.
“Startups are usually faster, they’re more efficient, and they have different business models,” Ljungman said. “We still deliver stuff more cheaply, more quickly, so more efficiently, but we really had a lower price point – and many times at a better quality – than what existed before.”
Ljungman cited startups like Uber and Airbnb, which rose out of the ashes of the financial crisis, as examples of what he meant.
Compared to hotels, Ljungman said Airbnb shaves down the expenses typically carried by “asset-heavy, expensive, models that have a hard time reducing their own operating costs.” And that advantage seems all the more prominent during times of economic hardship.
Don’t catch falling knives
But a market full of opportunities to invest also comes with a catch, Ljungman warns. That’s especially the case for investors looking for an arbitrage opportunity.
Just because something looks relatively cheap doesn’t mean it can’t get a lot cheaper, Ljungman says. In a market where everything is changing, investors run the risk of confronting a “total redefinition of the benchmarks and the metrics.”
And so, its important for investors not to overextend themselves on a position, otherwise those bets could “cut deep pretty quickly,” Ljungman cautioned.