Valuation, Liquidity and Opportunity in Uncertain Times

Issue 12 - Special Report Series - Part One

The content and distribution of Azafran’s INSIGHTS newsletter is focused to our LP, incubator, research, investment and partner ecosystem. As we look to build a two-way dialogue benefitting our collective efforts, each month we highlight important news and our approach to the emerging intersection of deep technology, end to end solutions and platforms driven by voice, acoustics and imagery.

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First and without question, we send our hopes and wishes to everyone in the Azafran community - for you, your families and colleagues to remain safe and unharmed by the COVID-19 virus. In economic terms, there is no precedent or vocabulary for the long list of what is happening now and the world is flooded by news media trying to make sense of it all.

As is our custom via INSIGHTS editions and our market research, we will keep the focus in our Special Report Series on the Azafran Thesis, limiting our comments and coverage on what we see ahead through this lens.

The Venture Market

Looking at the wider market, combining up-to-date research with our decades of shared experience in businesses, investment, and markets - here are some of the macro realities we see for the future:

  • When COVID-19 levels off and starts to subside by summer, we see a short recession considering the fundamentals leading into the crisis were solid, unlike 2008.
  • Later-stage investors will see limited exits for their portfolio companies with exits via public markets extremely limited, and PE/later stage suitors focusing more on distressed scenarios.
  • There will be a lot of activity in the secondary market - with an opportunity to buy portfolios or funds at a lower prices if they need liquidity.
  • Resulting in VCs in the mid to later stages of the market (i.e. invested $10’s and $100’s of millions or more) required to put more money into their existing portfolio companies and holding them for a longer than normal timeframe.
  • At the angel and seed stage, market losses will hamper their ability to make new investments and follow-ons.
  • In the current cycle, valuations in vintage funds from 2016-2019 most likely peaked before the crisis (some say were already heading down), so timing is a positive for early stage, new vintage 2020 funds (i.e. Azafran).

The Opportunity

There is sufficient market and economic consensus that the best- performing vintages tend to be those which invest at the low point of a downturn and into the early stage of recovery. As a 2020 vintage fund, Azafran Fund Two (ACP2) will capitalize on these new valuations and opportunities.

The new social distancing environment coupled with trends that were already well underway (i.e. technologies moving to the edge), we see further validation of the Azafran Investment Thesis: Investing in the imagery / voice / acoustics modalities feeding machine learning / deep science tech into health / wellness and IoT / enterprise markets.

From technologies that are helping mitigate the pandemic, to those enabling the remote enterprise and at-home worker, and health / wellness, these new realities will further speed the adoption / commercialization of this machine learning tech revolution. This is Azafran’s investment focus.

Since 2017, our team has been compiling a proprietary database (KESAR) using 347 tech tool attributes, tracking over 1,800 vetted and qualified companies. Groundbreaking Machine Learning and AI algorithms, combined with deep science, is creating new innovations leveraging voice, acoustics and imagery as the input modality, are already in the market and eliminate the inefficient touch based inputs; keypad / keyboard. These technologies and modalities meet the challenges of our new world realities such as hygiene and social distancing.

Considering these new realities, the Azafran thesis of investing / partnering in the modalities of voice, acoustics and imagery is even more compelling with even greater market-fit. The companies Azafran has invested in and those under LOI offer edge solutions, technology networks & platforms that make our lives better in the health / wellness and IoT / enterprise.

Our deep experience, global network, and hands-on focus are key at this stage of investing and company development, especially in this time of crisis. We are working every day with our founders / managers, focusing them on short term actions while strategically executing over the mid term horizon.

In recognizing the moment and appreciating the implications and severity of the situation, our team wishes you, your family and colleagues safety, health and peace as we face these incredible challenges together.

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