You must read the article below and express your opinion. The…

Question Answered step-by-step You must read the article below and express your opinion. The… You must read the article below and express your opinion.   The unexpected situation generated by COVID-19 puts companies of all sizes in check, hitting some more than others and stopping the possibilities of new investments.The governments of the region have promoted various initiatives to help promote the development and scaffolding of micro, small and medium-sized enterprises that, in general terms, have been aimed at giving them financial and tax relief. However, many of these aids are not comprehensive, that is, financing was granted without State guarantees, so banks continue to evaluate companies and entrepreneurs. Added to this situation is the fact that conventional financial services traditionally do not usually finance high-risk activities, which opens the door to developing the venture capital or risk capital industry.The situation of venture capital in Latin America has changed as a result of the coronavirus. The effects have been less liquidity for the companies, a delay in the original value creation plans, a significant reduction in normal operations and, in some cases, definitive closure. There is no doubt that under these circumstances, investments will slow down, term sheets could change, and many investment funds will focus on helping startups. However, the scenarios are diverse, since some of the startups of these VCs have been decapitalized by the scarcity of consumers, while others, such as logistics, telemedicine or focused technology startups, are experiencing high levels of growth. As a consequence, each VC fund considers different strategies to help its portfolio companies cope with the situation, based on various variables such as the industry, the market, the size of the company, their productive chain, among several others. considerations. The managers are making efforts to seek financing alternatives for the companies in the portfolio, to reduce the impact that the crisis presents them, where government entities, local development banks and multilateral institutions can play an important role.Prudential measures to face this crisisFirst of all, it is necessary to guarantee liquidity. The income of startups and companies in general has been reduced by the lack of consumption and liquidity, also a product of the necessary measures of social isolation. Companies that know how to downsize, optimize their processes, adjust their budget, adequately manage their cash flow, refinance their obligations with suppliers and restructure their costs, will be able to emerge stronger.Second, investment instruments must be structured. In a scenario of business valuation loss, going out to look for new capital or making new investments in the current portfolio (follow-ons) will be more complicated. Therefore, it is necessary to consider structuring other financial instruments such as preferred shares, convertible notes or options that are not based on an implicit valuation of the company and that could harm subsequent future valuations. It will be important to prioritize investment size over valuation, also considering that valuations will undergo significant corrections. Third, it is necessary to strengthen the actions of VC associations. Both emerging funds and younger entrepreneurs will need strategic support from VC associations. The associations will be relevant to promote joint action policies while maintaining liquidity in the venture capital market, although the funds are expected to prioritize the companies in their portfolio, of course.Fourth, state support is required. Government measures in the face of this crisis were diverse to reactivate the economy and prevent the payment chain from breaking. The pandemic could give startups an opportunity to access working capital financing under convenient conditions, such as that carried out by the Reactiva Peru Program or by the startup support fund implemented in the United Kingdom. On the other hand, state support should also be aimed at creating the ideal regulatory conditions to promote the venture capital industry and invite potential local and international investors to become part of the venture capital industry in countries where it has not yet been established. there is or is incipient.The venture capital industry will emerge stronger from this difficult situation that affects all economic sectors, to continue promoting entrepreneurship, job creation, innovation, internationalization and professionalization in the region. It is precisely the agile, innovative and digital nature of startups that will make them the ones that can recover the fastest. Soon we will have a new reality to which we will have to quickly adapt or, better yet, anticipate.    Accounting Business Financial Accounting FINA 2101 Share QuestionEmailCopy link Comments (0)