Investing In a Post-Crisis World
Even though Covid 19 has brought about great changes in how people conduct business, it is still okay to say that it only highlighted some problems that already needed to be fixed. A lot of underlying issues already suggested that there was a need to change the world’s approach to foreign policies, international investment, and the environment.
Most investors are generally wired to examine the risk surrounding a certain opportunity and afterward see if the returns are worth the risk. That’s the risk-reward tradeoff in investment. When the risk overshadows the rewards they can get from an opportunity, investors tend to shy off from investing their hard-earned money. However, within emerging markets, especially in politically volatile, some investors would be willing to take the chance and hope to break even if it means waiting longer than in other markets. In recent years, impact investing has become common in economies that traditional investors would be more cautious about.
What is impact investing?
The idea of impact investing started becoming popular just about a decade ago, but the practice has gathered pace in the last five years or so. Its goal is to invest in a manner that reduces the negative effects that most businesses have on the community and the environment. Impact investing is commonly accepted as an offshoot of philanthropy. On the other hand, investors apply impact investing strategies because they want to be associated with businesses that have the vision to positively impact society in some way.
Impact investing varies from industry to industry, but the goals and vision of the specific company in question also contribute a lot to investment decisions made. Some common examples include dedicating a fraction of profits to environmental regeneration or adopting manufacturing processes that use sustainable energy.
Consumer trends change due to new lifestyles after crises
During the Covid pandemic, many families had to adjust their normal life and work routines to work-from-home models and online shopping. In a sense, what many people thought will happen in a decade took place over a year. Such activities also made companies adjust to the new consumer trends, such as reducing the amount of office space they lease. A lot of those practices are expected to remain even if businesses slowly reopen. The new habits and daily patterns that emerged also brought some new opportunities to some sectors such as I.T and food delivery services. That was seen with conference calling apps thriving because work and entertainment were mostly concentrated on the internet sphere.
The technology sector is a key investment attraction when it comes to navigating a post-crisis world. Even though there is a slight chance that its market leadership may erode once there is a COVID-19 vaccine, there is still a higher chance that most lifestyle changes will not go away completely.
Creativity and Innovation are important for post-crisis recovery
Through the ages, major world crises have yielded innovation in some positive ways. The invention of bicycles came about due to the widespread death of horses due to famine. Businesses usually get tested during recoveries. In most cases, those who apply creative means to survive usually grow faster than businesses that are too reluctant to evolve with the times. In 2020, businesses needed to find new tricks to deal with social distancing and get new profit streams from new products.
Challenges have an effective way of spurring more creativity and meeting new consumer demands. Investing in businesses that have proved to be flexible to overcome unforeseen climate, health, or political upheavals is a successful way to grow investments over time.
As the climatic conditions keep changing, there is a constant push for younger generations to favor businesses with sound environmental and social practices. Environmental and Social Governance (ESG) is becoming a great factor in most young consumers’ brands. Companies are also trying to adjust to meet sustainable practices to make a good impression on consumers and investors alike. It gets even more interesting when electronics and automobile manufacturers have carved a niche of young consumers who find new battery technology and smart consumer electronics as trendy items. Many car manufacturers are thinking of phasing out older gasoline and diesel-powered vehicles for electronic cars.
Unlike most people believe, sustainable business is not just another trick to green-wash businesses. Besides saving money on fuel, many people are lately more conscious about their environment and will do their best to avoid products that come from businesses that heavily pollute the environment. The opportunities that come from sustainable investing have growth potential and will likely remain that way for decades to come.
The year 2020 venture capital trends
During the early months of 2020, too much uncertainty in the global economy showed its ripple effects in investment trends. Most of the venture capital funds were directed towards already-existing ventures in comparison to first-time investments. During Q1 2020, first-time investments only attracted 23% of the total number of US venture capital investment contracts done during the quarter.
Funding for existing companies was mostly geared towards either;
- Financing new growth opportunities in healthcare, technology, and food delivery.
- Firms shielding themselves from the adverse effects of the corona crisis.
With all the doom expected during 2020, the US venture industry instead closed with a new record of fundraising deals. Most investors remained active with the technology industry, finding their way to navigate the new challenges. Record figures were seen as $73.6 Billion was raised by venture capital funds over the year. The trend is expected to continue into 2021.
Investing in a post-crisis world is still possible and rewarding as long as investors follow the right trends. The money favors the businesses that are quick to adjust to new trends and weather the storm during unforeseen global crises.