Private markets

I got together with someone I have known since the mid-90’s.  He had a successful outcome with his business and has gone on to have an interesting career still connected to the technology industry.  Once an entrepreneur always an entrepreneur as he is starting to think about his next company.  It is always good to see that.

We had an interesting conversation about the private markets vs the public ones.  We both lived through the technology boom and bust in the late 90’s.  It wasn’t pretty but many of us saw it coming.  Valuing companies that had nothing but smoke and mirrors at prices comparable to profitable publicly traded companies just didn’t add up.  When things don’t add up they usually don’t stay where they are.

We are living in a technology era where the advent of technology is creating change in every sector of our lives.  It is exciting.  Many are starting to talk about the “bubble” but I am not convinced there is a bubble as much as there will be a time to recalibrate.  There will still be many new ideas and companies to enter the market but the valuations will be more in line of what they should be worth.  The escalation of valuations have to do with so many different factors from ego to accelerators to ownership to competition.  It is easier to create those type of numbers in the private market.  The public market place is more of a reality check to what the company is worth.

My guess is that we will be seeing a lot of private money get lost.  Some companies will just close their doors while others will just change their valuations in down rounds and continue to build into a meaningful business based on real worth.  The impact will be felt particularly in the crowd funding arenas where many have followed supposed leaders in their investments.

I heard from someone the other day who wanted some advice and a bit of a reality check on her investment strategy and expectations on some crowd funding sites.  The way she worded it was as if she expected a certain return and just wanted to understand the time frame.  It scared me.  Investing in start-up companies is a huge risk.  It is important to look at a portfolio with not one or two investments but multiple where you put in the same amount of cash in order to mitigate your risk.  You never know who will be the winner but you do hope one will pull out of the box and pay for all the companies that might not have succeeded.  You can also see zero returns and all losses.

I have been at it for a decade and certainly behind the curtain for a long time.  I am still learning.  I believe in the companies that I have invested in but who knows maybe it will turn out that I am a terrible investor.  I made bad choices.  That is why as an investor it is important to make your own decisions, do your own diligence and trust your own gut.

The public markets are based on real facts, real earnings and a real audience.  It is great to see so many companies grow and change the landscape of our economy but the private markets are starting to make me feel a little on edge.