Funding Problems, Capital Calls, Gated Funds, Down Rounds, Valuation Cuts?
I don’t want to sound like Debbie Downer and mention the “D” word (did anyone say downturn?) But with the private market approaching its 10th anniversary of a boom, sky-high valuations in some FinTech sectors, and the structural risk posed by large institutional allocations to the private market, it is time to ask two questions:
Are we prepared for a slowdown in the private market?
What would our game plan be, as investors or FinTech founders?
Folks in the securities and investments business are legendary for being optimistic and often miss recognizing negative signals early. The investing business thrives during good economic times and market booms when capital and transactions are plenty. But this late in the private market cycle, it is responsible to keep a keen eye out for any indication of an impending slowdown, so that we can navigate through tougher market conditions. The time to talk about market corrections was 2007, not 2009!
Three Observations About The Private Market
- The private investment market is inherently cyclical and closely tied to public markets. While PE investing is more tied to the debt market (cheaper debt drives PE activity), Venture Capital is strongly correlated to the equity market (healthy IPO pipeline drives more VC activity).
- A protracted public market boom (as we have seen since 2009) drives up the private market with four…