Most private market investors expect to make more money in 2022—but they’re getting less optimistic
Happy Monday, Term Sheeters!
Last week the Nasdaq took another sour turn—closing at a little over 13,791 points, or 3% below what it was trading at Friday open. The index is down more than 13% from the beginning of this year: an indication that tech stocks aren’t doing too great. (If we’re getting specific, the NASDAQ-100 Technology Sector Index, weighted for tech stocks in particular, is down more than 13% year-to-date, too)
Investors tend to clash on the influence the public markets hold over the private sector. But that in combination with soaring valuations, rising interest rates, and labor shortages, evidently has investors a little skeptical.
Private market investors have slowly become less optimistic about their short-term earnings on investments over the last five years, according to Semaphore’s 2022 annual confidence survey, which polled more than 500 private equity, venture capital, and hedge fund investors; limited partners; operating executives; investment bankers; and third-party vendors or advisers. Here’s a look:
Sixty-five percent of respondents expect to make more this year than they did in 2021—down from 76% in 2017, though it’s worth noting there wasn’t some major swing in sentiment this year from last. Even so, investors are becoming less and less optimistic than they have been in years prior.
Here’s a sampling of what respondents are saying, many of whom were Term Sheet readers:
– What goes up must come down
– Valuations are too high – that will cool down
– This is 1999/2007 all over [again]. Multiples are out of the stratosphere from excess equity/cheap debt. Buyers are solving for lower returns (even if they don’t say it…or even know it). Dying for a correction
– Too much capital chasing too few good deals; future returns will suffer from expensive entry multiples.
– Be careful of the great bubble
– Remember in March/April of 2020 we thought every fund portfolio would crash? The joke is on others not smart enough to be in our biz – not even a global pandemic can kill us. [Note from me: For whatever reason, this brings to mind something once allegedly said in the early 1900s: ‘Not even God himself could sink this ship.’]
You can’t help but wonder how that evolving sentiment will play out. At the end of the day, private markets, prices, and valuations are negotiated and set by the very people who say they are less certain things will stay on the up-and-up.
Back to Holmes… Out of sheer curiosity, I asked Semaphore to include a question about Theranos in this year’s survey. Was the Theranos-Holmes saga an outlier? Respondents were nearly split down the middle on their answers, with 52% saying yes, and 48% saying no. Here’s what they said:
– Theranos is the tip of the iceberg – there are hundreds of VC funded startups that are illegitimate fake hacks
– There’s a lot of exaggeration and selective use of facts and data in the industry, but there aren’t many outright liars and fabricators. Holmes purposely and knowingly lied repeatedly, which I believe to be “outlier” behavior and certainly not the norm.
– Too much misleading in general, too normalized
– To that scale? Yes. In general? No.
– I think this happens all the time
– she got caught, I’ve worked in Silicon Valley since 1982, lots of undetected fraud through the years
– My industry is based on personal integrity.
– That she is a woman prosecuted is outlier. That platitude and lies lead business plans? No. Most investors do not [do] due diligence before putting their money in. It is all based on who is running the deal and management and lead investors are often too close for objective truth.
– Hubris is always in fashion
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