Winds of change rock the pendulum of uncertainty
2021 saw the world’s health and economic activity sea-saw on multiple fronts. The year started with another variant of the Covid19 virus, and we became attune to a start-stop economic world. While there was a rising human toll globally, millions of people lost their jobs, many of whom remain unemployed even today. In spite of these setbacks, 2021 saw a way out of this health and economic crisis. Thanks to the ingenuity of the scientific community, we have multiple vaccines that can reduce the severity and frequency of infections. In parallel, adaptation to pandemic life has enabled the global economy to do well despite subdued overall mobility, leading to a stronger-than-anticipated rebound in April-September 2021, on average, across regions. 2021 also saw massive efforts from governments building health infrastructure and additional capacities, transferring cash & subsidies to people and businesses, and central banks cutting interest rates and expanding the bond buying program. This resulted in a seemingly anomalous relationship in 2021 between the crisis and a struggling economy at one end, and the strong capital markets on the other end due to monetary stimulus. Thus, 2021 has been a year of staggered recovery across the globe. Nearly two years since the outbreak of the COVID-19 pandemic, we continue to grapple with its medical, social, and economic effects as the threat of new variants surge continues.
The dramatic changes caused by the pandemic have served as a pressure test for our portfolio companies, testing resilience, resourcefulness, and innovation. Nimble, tech-centric businesses have thrived, leveraging the tailwinds of accelerated digital adoption. Management teams that were able to adapt to the changes precipitated by the pandemic were successful in ensuring the survival of their businesses as economies collapsed. Many of our portfolio companies had the best years in 2021 — great operational and financial momentum, a matured product market fit, and attracting & retaining world class talent.
The acceleration of these megatrends reinforces our emphasis on backing resilient, digital-first, capital-efficient businesses. This will hold the portfolio companies in good stead as we entered 2022 that experienced rising inflation, hawkish central bank policy, resultant rate hikes, and a war between Russia & Ukraine which has resulted in devastating damage to life and property in Ukraine, shocking global supply chains, increasing price of oil and gas, and further fanning inflationary trends in the economy. These winds have brought about uncertainty in the world, which human beings are not programmed to live with, and function in ‘normal’ times. Mankinds earnest efforts in solving for this uncertainty to protect economic and social interests, bring about volatility in life, outputs and capital markets.
While our portfolio companies are resilient and fundamentally strong businesses, they are not completely immune to these economic and capital market shocks. Since no on can predict how bad the economy will get, portfolio companies have been warned. The safe move is to plan for the worst. If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend the runway. Regardless of their ability to fundraise, it’s our collectivere sponsibility to ensure the company will survive even if we cannot raise money in the next 24 months.
We will wait and watch as the economic story unveils, and will be cautious and watchful in 2022.
