Trends in private equity and venture capital: Here are 5 investment predictions for 2023 from a VC expert
The only true constant across the investment landscape as we navigate through 2023 is the certainty of volatility. So, as we look forward to the rest of the year amid another bear market, Americans are seeking alternative ways to invest their money.
As economic growth continues to decline in 2023, accredited investors can still make money. First, however, they need to be aware of the market’s changing tides, plan for a potential recession, and prepare for an unstable job market.
In this piece, Linqto Chief Revenue Officer at Linqto Leo LaForce offers some compelling insights about trends in private equity and venture capital and five investment predictions for 2023. Linqto is a principal investment platform that provides accredited investors with the ability to invest in private equity and venture-backed companies.
With that, here are five investment trends that LaForce expects us to see as 2023 unfolds.
Continued Demand for Alternative Investments
There will continue to be an appetite for alternative investments, and they’ll continue to thrive within the high net worth and accredited investor space. This is due to the resiliency of many alternatives, especially during market downturns. For example, Venture capital (VC) and private equity have historically outperformed the S&P 500 Index. Additionally, venture capital funds specifically tend to show resiliency during market downturns. This is a function of lead VC funds focusing on providing capital to keep existing companies growing rather than deploying capital into new ones.
Companies will Stay Private Longer
Quality companies will stay private longer with significantly more value-created while private (versus post-initial public offering). Once companies become public, there tends to be pressure from Wall Street to push for profitability over growth. On the other hand, venture capitalists are more lenient when there’s a lack of profitability for market capture and top-line growth. So, they stay private because, for many companies, a lot more growth can be done before it’s the right time to go public. We’ve witnessed this trend over the past couple of years, and we expect that trend to continue as there will be less pressure for companies to IPO after a time frame that may not be in the best interest of the venture-backed company.
Democratization of Finance
There will be an overall democratization of finance and the first innings of democratization within alternative investments. Institutions are maxing out due to investment mandates about how much they can allocate toward private markets with a lot of opportunity and capital needed in the private market space. This capital deficiency drives asset managers to push these investment opportunities into their wealth management arms. Wealth managers, who control over $100 trillion of assets globally, seek new and better private market solutions for their clients. This is also because, for investors with less than $100 million of assets, it has been historically difficult to access private markets in a cost-effective, diversified way.
Further, conversations are happening in the circles of the private equity giants to open the doors to more retail investors. As a result, private markets are set to double in size by 2027, driven partly by the retail appetite.
Better Price Discovery
Exchange-driven solutions for secondary market trading will help create better price discovery and alignment on valuation between sellers & buyers. With this exchange activity, we are also likely to see an inflow of market makers participating in the private secondary markets.
Less Stringent Accreditation Requirements
Pressure will grow to lessen accreditation requirements for investors to access private market investments (as they can in public markets & cryptocurrency). This is because the tendency for private equity to outperform public markets has fueled a debate over fairness. Recent comments from SEC officials indicate that they are also aligned with this idea—they just want more disclosure.
As accredited investors plan for the rest of the year and look to develop and execute investment strategies, keeping a potential recession in mind is imperative. Although the shifting economy will not be the ultimate deciding factor in whether or not investors make or lose money, various factors must be considered to remain diligent. Although we are facing uncertain times, plenty of optimistic trends could result in well-timed and profitable investments.
About the Author:
Leo is Linqto’s Chief Revenue Officer, focused on expanding the company’s already significant levels of commercial growth and customer satisfaction. Leo has over 15 years of experience in senior Sales, Client Success, and Marketing roles with high-growth global fintech SaaS and BPO companies, as well as co-founded an international medical cannabis platform. Previous roles included Chief Client Officer at Prometheus, helping launch that alternative investment marketplace, as well as Head of Sales and Chief Marketing Officer at HedgeServ, scaling revenues to $200M in five years while maintaining 100% client retention and +100 NPS scores. Leo is a graduate of the University of Connecticut and the Maastricht School of Management.