We are going through some of the most economically tumultuous times in recent history. Overall, I see three crises intersecting.
First crisis: We just now passed a pandemic that spread worldwide and impacted countless lives. The last one was 100 years ago, according to the CDC. Whether you are rich or poor, powerful or not, and irrespective of your race, color, sex or religion, the virus took many loved family and friends. Everyone had to stop flying for a while.
Second crisis: Most of us had only seen ‘50s movies about a major war in Europe. The conflict in Ukraine is an event that has the potential to have a cascading impact for many more decades. It is yet to be determined whether this will be a low-intensity war like Syria or if a major resolution will come to effect.
Third crisis: The previously mentioned factors and others have created yet another monster of a challenge for countries around the world: inflation. The U.S. has reached 9.1% inflation, the highest in more than 40 years, and many countries around the world are facing immense financial pressure.
For example, there was a power struggle in Sri Lanka where the president of the country had to flee to Singapore. Spiking food prices due to blockades have created havoc in poor countries and hurt their ability to feed themselves. It is estimated that more than 100 million people may be displaced because of food shortages around the world.
These forces have led to an onsetting of events like the crypto winter, a turbulent stock market and exceptionally higher interest rates than most of the current generation of professionals have ever seen.
We are also experiencing the effects in the startup world. Venture capital investments in the U.S. are already way down. CBInsights, a firm that tracks VC investments, recently noted that global venture funding saw $108.5 billion raised across 7,651 deals last quarter—marking a decline of 23% (download required) quarter over quarter. This is the biggest quarterly percentage drop in deals and the second-largest drop in funding in a decade.
But despite all the negative talk, there is a potential brighter side to this monumental crisis.
What Can Emerge
Tough times like these often lead to the creation of a new generation of companies that emerge from the ashes of an economic crash. Take a look at the 2008 crisis when Lehman Brothers collapsed. It was a clean wipe out of almost $2 trillion from the global markets. But this crisis helped lead to the rise of the gig economy, which fueled the growth of many businesses like Uber, Airbnb and Stripe. These creative companies leveraged technology, the climate and even the jobless people who were looking to get extra income during hard times.
Going further back to the dot-com bubble, Nasdaq stocks fell almost one-third in valuations. By the end of the stock market downturn of 2002, stocks had lost $5 trillion in market capitalization since its peak. But from such painful losses, a new wave of companies went on to become world leaders. Many forget that Amazon, during this time, lost 90% of its value in a month or so. But many of our current industry leaders grew after this event, including Google, eBay and Booking.com.
So, which sectors will emerge from this mega-crisis post-2022 and beyond? I see four major areas that will likely see the birth of new and innovative companies.
First, I believe the global cooperation we saw during vaccine discovery and production will lead to the next generation of healthcare and pharma companies.
Another sector that will emerge will be a new generation of energy companies. Combining the global disruptions due to war and climate changes, a new breed of winners is poised to help solve the burning challenges of humanity.
Real estate will also be one of the most impacted sectors in this crisis; the numerous interest rate hikes and the global shortage of materials and labor due to supply chain constraints will lead to the birth of new companies that will create new delivery mechanisms for this sector. Homes, hotels and short-term rental properties will see increased demand over the next two decades as Gen-Z starts settling into their lives.
And finally, the technology sector itself will evolve in response to our current economic reality. Given factors such as the shutdown of Russia from global financial markets, many countries will try to build their own financial gateways and other payment technologies. Whether it will give new birth to a new form of successful crypto or web-3.0 companies, only time can tell.
The world always finds its own ways to reinvent; I believe creative destruction has already begun.
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