Highlights From The Information’s Private Capital Conference
Investors at The Information’s Private Capital Conference Tuesday said the shakeout in valuations the past two years has given them more opportunities to find attractive deals—even in beaten-down sectors such as e-commerce.
But tech founders face higher hurdles to go public and many initial public offerings remain far off, even for most artificial intelligence companies. A cautious note pervaded much of the discussion, with memories of the most recent tech meltdown still fresh in many minds.
The Takeaway
• Fundraising remains strong at large funds
• IPOs are off-limits for smaller startups
• Investors see opportunities in decrease of startup valuations
Party Like It’s 2021…
Investors are bracing for the return of mega sovereign wealth investing. Asked about recent media reports of a potential new $40 billion fund coming out of Saudi Arabia, Spark Capital Managing Partner Jeremy Philips likened the feeling in the market to what it was in late 2021.
“The animal spirits that we see in the markets today, to me, are the most extreme that we’ve seen, including Q4 of 2021. And that’s already true. It’s not consistently true as it was in 2021, where it was true for everything, but it’s certainly true in pockets. I think an extra $40 billion dropped in is something that one would need to think carefully about, what the right way to play that is.”
…Unless You’re a Smaller Startup…
Despite the recent IPO of Astera Labs, which went public with nearly $116 million in revenue last year, investors were largely bearish on the public market prospects for relatively small companies.
“In the past, you could go public when you were at a $500 million market cap, you could go public with $50 million in revenue,” Philippe Laffont, Coatue Management founder and chief investment officer, said. “Today, we think that you can’t go public without a billion dollars in revenue and $10 billion in market cap. It’s really hard because public markets are more than ever dominated by indices, dominated by ETFs.”
…Or a Long-Term Investor
“I think in most areas the prices are reasonable,” said Anton Levy, co-president of General Atlantic, citing sectors such as enterprise software and e-commerce. “It’s a great environment to put new capital to work.” Similarly, Mubadala’s venture head, Ibrahim Ajami, said, “[We’re] moving into offense.”
Put Things in Perspective
“The biggest thing that I learned is that things are never as good as people think and never as bad as people fear,” said Imran Khan, founder and chief investment officer of Proem Asset Management, about his experience as an investor in neobank Dave. The company was privately valued at $2 billion and doubled its valuation in a special purpose acquisition company deal. As a listed company, Dave’s market value plunged to a low of $53 million, but it has since rebounded to $450 million.
Bankers Say ‘Growth’
“Investors are particularly focused on growth,” said Elizabeth Reed, global head of the equity syndicate desk at Goldman Sachs.
“Growth is extremely important,” said Lauren Garcia Belmonte, head of technology equity capital markets, Americas, at Morgan Stanley. “It will create success in the IPO markets.”
AI IPOs Are Mostly Far Off
“The majority of the companies that are truly pure-play AI focused are still mostly financing themselves in the private markets,” said Michael Harris, global head of capital markets at NYSE. “We have seen a handful of companies that are at least going through the process of speaking with us,” he added.
Don’t Be a YAC
Tony Kim, a managing director in fundamental equities at BlackRock, said he is sick of YACs—Yet Another Company. For Kim, who expects fewer than 20 tech IPOs this year, there are too many startups competing with each other in the same sectors.
“If you are in the same category [as your competitors], and you are smaller and you’re growing less, why should I care?” Kim said. “Are you a YAC?”
E-Commerce Comeback?
General Atlantic’s Levy said the negativity around e-commerce startups is overblown, which means you can find some attractive prices if you can figure out which firms have “real moats” and “real margins.”
“There’s so much negativity in and around e-commerce that some of the prices there are maybe borderline attractive,” Levy said.
Haves and Have-Nots of Fundraising
“Large funds with big brands are having no problem fundraising—it’s actually been an extraordinary time for them. It’s the emerging funds that are going to have a harder time,” said Jennifer Heller, president and chief investment officer at Brandywine Group Advisors.
Walmart Has Big Lead on Amazon in Grocery
Marc Lore, who has sold startups to both Walmart and Amazon, said Walmart’s vast footprint of retail stores will give it a long-term advantage in the battle between the two giants. The bricks-and-mortar retailer’s huge presence in the low-margin grocery business, Lore said, gives it room to draw in customers to whom it then can sell higher-margin goods, including through its website.
“Structurally, the long-term competitive advantage around groceries is really important,” said Lore, who was CEO of Walmart e-commerce from 2016 to 2021. “If I were still there, I would be pushing really hard to lean into that advantage.”