Does a market downturn drive investors away from Opportunity Zone Venture Capital? No – it’s the opposite, and here are five reasons why.

The markets are turbulent; investors are uncertain. Companies are talking about having liquidity issues and debt repayment problems and not having any work for their labor force. Naturally, people may assume Opportunity Zone venture capital could be drying up during these times. But interestingly that’s not the case. Instead, we see an uptick in interest in Opportunity Zone Business (OZB) investment. 

 Here is why:

 1: Lots of people have been “taking some off the table”. The market has been going up for one of the longest runs in history. Investors have had years of solid gains and are selling equities they have had in their portfolio for quite some time. This means they have started their capital gains clock, and they will either have to pay tax on those gains or defer them through something like the Opportunity Zone Program.

 2. In times like these, investors look largely for security (cash, bonds, gold, etc.). But this is balanced by the desire to find some higher-return opportunities. Ideally, investors would like to put a subset of their gains in something that can generate significant, tax-mitigated returns in the long term.

 3. The market will recover – it always does – but it will take some time. OZ investing is a long-term investment, not overly dependent on the next 6 to 18 months. OZ is designed with a 6-year hold for tax deferral benefits on the original capital gain and a 10-year hold for tax free returns on the OZ investment. That long-term view looks particularly good right now.

 4. Early stage OZB/Venture is an ideal place to invest right now. The primary use of funds for many early-stage, high potential companies is to hire staff, freelancers, and sub-contractors to build and improve their offerings. If we are in leaner times, many qualified people will be available for full-time hire or interested in supplemental work, and many small companies and agencies will be looking for more client work. Investing in high-quality job creation is an attractive premise during any economic cycle, but particularly so when times are tougher.

 5. Early stage startups companies are already small, nimble, and used to surviving (and even thriving) during lean times. Many are in the stage of improving their MVP (minimum viable product). During a market drop, they can go heads down and use the time to strengthen and prepare for the market recovery. By using their funds well, this breathing time can be a blessing in disguise. When the market surges back and needs the solution they offer, they’ll be ready. They’ll catch up for the “time lost” quickly.

OZB is no longer “new news”. But in times of market uncertainty, it’s especially good news!

Brian Phillips is a nationally recognized pioneer in business investing in opportunity zones. Brian launched the Pearl Fund (www.thepearl.fund), the country's first opportunity zone venture capital fund. December 2019 Forbes ranked Brian and the Pearl Fund as one of the top 10 OZ funds in the country.  The fund invests in early-stage high potential startups. Follow him on Twitter @thepearlfund.