The state of private markets in 2023 with InvestX
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What
InvestX is a Canada-based sell-side marketplace for late-stage private equity through InvestX GEM, the company’s trading platform, offering private market access to pre-IPO companies without multimillion-dollar investment minimums. Founded in 2014, InvestX has raised more than $2 million to fund its mission and the technologies supporting it.
Why
According to Marcus New, InvestX’s Founder and CEO, InvestX was founded because of a burgeoning private market, which compelled venture-backed private companies to stay private longer than they did previously. Facebook went public at $104 billion dollars in 2012, while Amazon went public at $440 million in 1997. In addition, due to the JOBS Act of 2012, which expanded the maturity of the cap table from 500 to 2000 or more, there was greater investor interest in private markets. “All of a sudden, we saw that this change was really going to happen,” New said. With the same firms investing in promising startups and making a profit, New saw an opportunity to expand that opportunity to retail investors.
Private markets in 2023
New said private markets did not pick up notably in 2022, even if IPO markets closed. Sellers had anchored valuations in 2021, and the private markets lacked mark-to-mark information about the performance of that business. And, on the institutional side, bidders were unsure how to price, in large part due to macroeconomic and geopolitical uncertainty, leading to 30% to 40% spreads between bids and offers.
Further, hedge funds like Tiger Global accelerated due diligence periods to beat out other investors; given the decline in Tiger Global’s valuation in the wake of that strategy, private investors have backed off from deals in order to reassess how to allocate their funds.
However, tech layoffs have created a new demographic looking to sell their pre-IPO shares, as companies offer fired employees short windows of time to exercise their RSUs and ESOPs. “There will be a whole bunch of distressed sellers that will start to come to market,” New noted.
Going into 2023, InvestX doesn’t anticipate IPO markets opening up at all, because there are no institutional bids in the public block trade markets. In addition, since many long-term shareholders need an IPO event to create liquidity, entrepreneurs and professional managers are going to wait until there is enough bid support.
New thinks markets may open up in the last half or quarter of the year. “We've got some specific indicators that we're looking for—starting to see that block trades, refis of converts that privates have—when we’ll start to see institutional money coming back into that market,” New said.
In the meantime, InvestX anticipates secondary markets to pick up significantly, because expectations are properly set by the public markets and because growth can be found in private markets. Growth-distressed companies like Klarna, for example, took funding at steep cuts from previous rounds, but then saw their valuation rise on the private market. “The distressed seller, the issuer at that time needed capital, which is the perfect environment for making money,” New noted.
