This blog is an excerpt from a research report titled “2018 Year-End Investor Survey: Investors still bullish about private tech.” To download the report, please log in to your SharesPost account or register here.
The recent sharp declines in the public markets have understandably unnerved investors. But how did the downturn impact the attitudes of private investors?
Despite the recent volatility on Wall Street, investors remained optimistic about private tech firms but less so than previous years, according to our third annual SharesPost Investor Survey. You can access the full survey data here.
More than half of investors continue to think private tech companies offer better potential for returns compared to public tech companies. However, investor pessimism is growing with 19 percent picking neither public or private tech companies, compared to 3 percent in 2017 and zero percent in 2016.
The data is noteworthy because it suggests investors expect some correlation between public and private markets. Over the past several years, investors have poured billions of dollars into private firms. But the emergence of this private asset class has exclusively existed in an era of rising stock prices on Wall Street.
We are clearly approaching the ninth inning of a record-breaking public market bull rally, and we simply don’t know how a stock market correction or a broader economic downturn will impact the private markets.
From prior stock market corrections, we have learned one thing for sure - we live in an integrated economy, a slowdown on Wall Street will likely have a negative impact on private firms. However, the funding environment remains significantly robust, as private investors continue to make big bets, especially on late-stage firms.
Over the past few years, private investors have been favoring larger deal sizes over deal volume. In essence, they are placing their bets on category leaders. The same now might be true with the public markets. Based on our survey, we think that the public markets will mirror the private markets in this one crucial respect.
Even though big names like Uber, Pinterest, and Lyft will likely go public this year, investors expect the overall number of unicorn IPOs in 2019 to return to historic levels. In other words, mega unicorns, not smaller firms, will likely pursue a stock listing this year.
Here are some other highlights from the survey:
Investors are bullish on private tech valuations. More than two-thirds of respondents believe tech valuations will at least remain the same, with 51 percent believing valuations will at least marginally increase.
Generally muted outlook for public markets in 2019. 63 percent of investors believe the S&P 500 in 2019 will be, at best, flat. Investors are not as bullish as they were in 2017, when 58 percent of respondents believed the S&P would gain at least 5 percent.
Biotech gaining on fintech as the industry with the best growth prospects. Fintech remains number one. But 43 percent of respondents say biotech will also see substantial growth, up from 20 percent in 2017. Big data analytics and security software continue to follow close behind.
Investors retain positive opinion on secondary market exchanges. Over the past three years, investors have consistently put money into late-stage VC-backed companies via secondary exchanges. According to our survey, 82 percent of respondents consider secondary market investments as either attractive or neutral, compared with only 19 percent of respondents who say these investments are unattractive.
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Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.
Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.
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