Finding Opportunities in Distressed Markets

Ever since rates started rising well over 12 months ago, we have been talking about the stress that will be put on all areas of the economy for a sustained period of time. It’s clear to see with the recent news of Silicon Vally Bank and Signature Bank that we are in the depths of that distress, and I am sad to say that we think it is likely to continue for some time.  

That said, with distress comes opportunity. Things must be destroyed in order to build them back better, and that’s exactly what we think is going to happen over the next several years during this down market. Rather than watching this happen from the sidelines, why not get in the game and take part in that growth and reconstruction? In this article, we will discuss four main areas of that present exceptional opportunities to take advantage of the up-and-coming transformation that will be seen throughout all economies of the world.   

Those four main areas are: 

1. Technology  
2. Capital stack arbitrage
3. Underserved geographies 
4. Education and regulation 

Technology 

Technology is the biggest focus of our company, and this is because the opportunities to create world-altering technologies are perhaps greater than any opportunity in the world today. This is because so many of the largest asset classes, businesses, and institutions of the world are extremely outdated as compared to the modern technology that younger generations grew up with. Of course, you can’t blame them because older generations didn’t know what smart phones were until the same time that we did. The crazy part is how recent that was and that industries like real estate, lending, transportation, energy, and other massive sectors have been built over the decades with the outdated technologies that they had at the time.  

Microsoft Excel, for example, completely revolutionized the world of finance and continues to be one of the most popular pieces of business software out there for every major institution.  Excel has improved greatly over the years, adding features, plugins, and customability. That being said, compared to more modern technology that many of us are used to today, like Notion, the user experience of Excel looks and feels very outdated. It gets worse when you try creating complex models that require large data structures and automations across formulas, assumptions, and outputs. This has led to the rise of enterprise SaaS, which has been one of the hottest spaces for investment and B2B transactions for the last decade or so.

However, even many of these SaaS platforms lack the modern UI/UX that many of us crave- not to mention that the current state of enterprise SaaS is incredibly expensive and largely inaccessible to the average small or medium sized business, let alone non-enterprise users. This needs to and likely will change, and we hope to be at the forefront of that change. 

Another space that we are already starting to see being revolutionized by technology is documentation and administrative processes. The world of real estate is a great example of this, especially in foreign countries (which we will talk about more below), almost every aspect of a real estate transaction is currently unbelievably inefficient. Companies like Redfin and Airbnb have worked to improve these experiences and have created very nice synergies alongside fintech firms like Stripe and Square. However, on the commercial and institutional side of things, data discovery and analytics, mortgages, escrow, legal, and accounting are all very much inefficient and outdated.  

The lending business presents a particularly large opportunity for massive technological disruption given the size and current state of clunkiness. Many companies, from startups to large institutions, are already working to tackle this issue through the use of blockchain technologies. The likely outcome is that change to an industry as large as bonds and mortgages will need to come from the inside, rather than startups. Companies like Citibank and JP Morgan are already working to develop their own in-house blockchains to improve the lending business and financial transactions in general.  

Climate, food, transportation, construction, infrastructure, and education are all other categories outside of the financial services sector that represent massive opportunities for technological innovation over the coming years. In fact, technology will likely play a role in most, if not all of the opportunities of tomorrow, across industries and geographies, and is an important thing to understand, rather than be scared of, and try to use it to your advantage.