Corporate Australia turns to private markets as venture capital starts to re-assess
Private markets have a critical role to play in assisting emerging companies access funding to grow revenue and enhance their corporate profiles, especially in the current economic climate where venture capital is becoming increasingly selective.
Marcus Ritchie CEO of PrimaryMarkets, Australia’s largest trading platform for private unlisted companies, says many of these companies are unaware of the range of equity funding options available to them outside the venture capital arena and are therefore putting their growth strategies on hold because of a perceived lack of funding.
At the same time venture capital funds are pushing to have liquidity events and achieve profitability on shorter timelines than originally envisioned.
“Companies have watched as venture capital funds have hit the brakes on their investment plans in the wake of the global tech market correction. Since the start of the year, the tech-heavy Nasdaq Composite Index is down more than 25% and the ASX Tech Index has fallen 33%.
“Another barometer of the correction in the public markets is the fact that companies seeking to list on the ASX over the next 6 months are only seeking to raise $120 million. For the corresponding period last year $1.25 billion was sought to be raised,” Ritchie noted.
He says these companies should take this opportunity to look for alternative equity funding.
“We have seen more than $100 million traded recently on our Platform as investors look for attractive investment opportunities in the private markets and importantly, on average, these companies have performed well against the ASX S&P 200 over the past few months. These companies have access to a new, diverse range of global sophisticated investors who are now looking for alternative investment opportunities outside the listed markets.”
Although investors have the option to trade in and out of private companies, many invest with a longer-term investment horizon, he said.
“They appreciate these opportunities are often attractively priced and are prepared to accept the risks of less liquidity and less disclosure compared with publicly listed companies. And itis not just sophisticated investors who are looking closely to invest in this market. Family offices and institutional funds are also looking for opportunities in this space.”
Ritchie says the fact that a wider cross section of investors are looking at private market investing also gives these companies more options.
“Many companies are deciding to stay private for longer and alternative funding helps facilitate this. They appreciate their high-growth strategies often don’t suit shareholders focused on short term earnings and dividends.
“In the current economic environment, companies and investors are reassured that our Platform has the highest security measures in place. We don’t hold any investor funds on our Platform nor provide funding to facilitate trades, which makes trading secure and provides peace of mind,” added Ritchie.
