Observations of growth stage investing: What’s next?

  • We are experiencing a reversion to the mean as the market downturn is acting to offset the late 2020–2021 spike in asset prices. We anticipate new deal data to validate this observation starting with Q2 (and certainly Q3) numbers.
  • Private company markdowns will take quarters (or years), not months to fully be represented (although we have seen recent marks reduce in companies like Klarna & Stripe).
  • The market reset provides a return to a rational environment where underwriting of deals has shifted away from a “growth at all costs” mentality, and is inclined toward fundamental metrics such as margins, capital efficiency, and the current public market comps.
  • 2020/2021 vintage year late-stage funds that had accelerated deployment timelines are at the highest risk of underperformance.
  • Large hedge/crossover funds have generally vacated the late-stage private markets, instead opting for earlier stage or public market investing. It’s uncertain whether this is simply transitory.
  • Deal velocity has slowed down dramatically, with a particular slowdown in $50MM-$100MM+ ‘mega rounds’ as bid/ask spreads between companies and investors remain large.
  • Growth stage investing will return to being a dependable area of investment marked by lower risk and shorter times to liquidity. However, generating outsized performance will require the careful manager and deal selection as the extended bull market era where “everyone wins” is unlikely to be seen anytime soon.

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samir kaji

samir kaji

VC/tech advisor, venture blogger, active angel investor, banker