The future of local investing

Author: Daniel Gašpar, partner, Crowdberry

At present, it is difficult to anticipate the challenges that await us in the coming weeks and months. The coronavirus and the Covid-19 pandemic will continue to affect all of us personally and professionally. We remain at an economic and geopolitical turning point. It will take a long time for our economies to recover from the pandemic. But with well-managed investments with a focus on high-quality founders and the right sectors and products, it is possible to turn even such a crisis into an advantage and consistently generate attractive capital returns for investors. Locally.

The situation surrounding the coronavirus has tested not only the inner workings of society, but also of private companies. Paradoxically, it is from China – where the coronavirus originated and spread throughout the world – that the expression that bears the idea of both the crisis and the turning point comes: weiji. This term accurately describes what our generation will go through in the coming period. It would be premature to talk about specific ramifications, because further developments may play out according to different scenarios. However, we at Crowdberry see several clues as to how this “tectonic shift” in the world economy and local behaviour will influence the future of business and overall trends. Some of them can also be an inspiration for investors and future investment opportunities:

  • Localisation of production and consumption: We anticipate a return to domestic production due not only to solidarity with local companies, but mainly because of the limits on products available for import and the paralysis of the supply chain.

  • Shift of sales channels to the online world: The winners of the global pandemic are digital business models and e-commerce platforms that operate in the online environment. Their flexibility and cost base and the fact that they do not require personal contact are proving to be major advantages over brick-and-mortar operations. Digitalisation and e-commerce will gain even greater momentum.
      
  • Automation and robotisation of processes: The interruption and shortage of human labour during crisis scenarios is another trend that will be reinforced by the current pandemic. Continuous production and flexibility in managing volume (in the event of rising or excess demand) will become a fundamental competitive advantage.

  • Capital appreciation: Flexible financing with decreased dependence on banks and lessened sensitivity to unexpected shocks in direct relationship to capital providers, will become a necessary part of shoring up companies' resilience against external shocks. This is also inevitable in light of the economy's reduced dependence on the automotive and manufacturing sectors.

  • Zero-interest rates: Due to the rapid increase of public debt, “lower for longer” will become “lower forever”. Capital investments that bring growth and dividends will be one of the few havens for return-seeking capital, particularly in sectors that profit from structural changes in the world order. Cooling in the area of residential real estate and rental income shortfalls (e.g. Airbnb, labour mobility) will further strengthen this trend.

Local investment in small and medium-sized enterprises has a fundamental impact on domestic companies, while external shocks can also have a positive effect on companies’ business models. We are currently observing a similar situation with some companies in the Crowdberry portfolio (e.g. GymBeam and Isadore Apparel). In more complicated situations – where a helping hand is needed – it is possible to overcome a difficult period with targeted control of investments and support for investors, allowing companies to gain a better competitive position in the market with their products and services.

Of no less importance, the allocation of domestic capital to local companies also helps our economy and secures job opprotunities. Local investment can then directly support a change in the structure of the economy toward sectors with higher value added. For our future.

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