Does market volatility affect start up investments ?

Does market volatility affect start up investments ?

Let’s first have a look at what is market volatility? It is basically the velocity of changes in price in any market, like commodity, forex and stock market. It can be caused by various factors but the most common and important one is the economic crisis.

We can take into consideration the present situation, our economy is witnessing the major downfall, so are the economies of western countries. The question arises, will this market volatility affect the startup investments?

Market volatility not only affects start up investment but also the overall investment sentiment. We can see the best example of market volatility today due to COVID-19 pandemic. Well, some people might be thinking about the dead end of startup due to world lockdown and thinking it as futile investment. But remember that it is not the first time the market has witnessed volatility. Volatility in the markets is the time when most of the startups falter. So wait and watch, let the dust settle and see the full potential of the start up. 

Though the market volatility may be there for a short time period, it always leaves imprints on the business.

So what happens to investment decisions during market volatility;

  • PE & VC’s put off their plans during such times. Majority of investment decisions are either postponed or cancelled. “CASH is the King”, Investors prefer to sit on cash rather than fish in troubled waters.
  • IPO’s are either postponed or put on hold. Airbnb has put its IPO plans on hold.
  • The investors will typically try to reduce the valuations and thereby get more equity for less money. Investors might also try to put many riders in their investment proposal.

Conversely, Market volatility also means prime time for investment in startups;

  • Investors will generally try gauge the behavioral shifts like price trend, fashion trend and prefer to invest in emerging technologies.
  • Sometimes a startup idea is so unique and innovative that the market volatility does not impact the investment decisions. Rather, in times of volatility investment in startups provides a respite from daily price fluctuations. 

You will never be fully aware of what will come the other day? You just need to assess the situation when it comes in front of you and take full advantage of it. 

Let us look at the positive part, this market volatility will examine the startup for its surviving and winning potential at every twist and turn. So make sure that you stand strong in this tough situation. “Tough Times never last but Tough people do”.

Startups – How can you do that? Well, BFAG (Boston Financial Advisory Group) is there to help you and provide you the best financial services that can help you to tide over the volatility. We provide ingenious strategies and quality accounting practices that can maximize your performance.

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