Not All Valuation Decreases Are Bad for Investors

In an interview with Forbes this week, I spoke with an analyst about recent trends in private market valuations and what that means for investors.

While markdowns tend to drive “Doom and Gloom” headlines, some valuation decreases are healthy. After nearly 15 years of unprecedented growth, the public and private markets were due for a reset. But, the fundamentals of value creation in the private markets remain the same, and the time horizon of PE and VC funds allows you to invest across short-term market fluctuations.

The best companies will continue appreciating over the next five to ten years, and the key to capturing those returns is to be invested with top-tier managers. While there will be opportunities from trusted friends or past colleagues, investors who can leverage an institutional level of sourcing, selection, and diligence will be the ultimate winners.

-Logan Henderson, Founder and CEO

Worth a Read

For Private Markets, a Downturn is an M&A Opportunity

Deals done during downturns can create large amounts of value. Read more.

Intro to Mezzanine Capital

Mezzanine financing allows companies to raise capital without giving up equity or incurring too much debt. Read more.

A Final Thought

“When we were turning out big profits, I became somewhat delirious, and looking back at myself now, I am quite embarrassed and remorseful.”

– CEO Masayoshi Son on SoftBank’s record $23 billion quarterly loss.

What can we take away from this high-profile personal reflection?

Bigger is not always better, and VC does not scale effectively. Son’s 2017 $100 billion Vision Fund was the main driver of the record loss. VC is a game of “big swings.” Still, too much capital creates pressure to invest more dollars into each company, inevitably pushing the fund’s dollar-weighted capital into larger, later-stage rounds at higher pre-money valuations while leaving partners less time to source, diligence, and support companies in their portfolio.

Let us know what you think – please don’t hesitate to reach out.

-The Team at Gridline