Global Intel Hub — Knoxville, TN — Private markets are seeing a comeback, lagging public markets by several quarters.. Although many companies that saw dramatic losses in equity value are still just off their 3 year lows, bids seem to be trickling back in and for some names in demand, shares are hard to come by.
According to interdealer platform ZX (Zanbato) the bid/ask spread is at a 10 month high of 45% bids to 55% offers. The below image doesn’t show it because it only goes back 12 months, however, during the 2021 peak, the bid ask ratio was something like 70% / 80% bids to 30% / 20% offers. Or in other words, there were more buyers than sellers. For the past 2 years it’s been a buyers market, there have been almost all sellers and almost no buyers. This tick up in the bid/ask ratio is a sign that things are bottoming at least. See the chart below:
Source: Zanbato
Broker Dealers are reporting an increase in volumes, and VC funding seems to be returning. This is driven by public markets and general market sentiment, but also FOMO seems to be returning to privates which is what gave us the insane valuations in ’21. It’s nearly impossible to find shares in companies like Anduril, SpaceX, Anthropic, Lambda Labs, and other AI names.
Secondary markets are an interesting indicator in Private Markets because they aren’t tied to a company’s round. An issuer’s private secondary market can be very active (Klarna) or non-existent (Jasper). There is an ongoing debate about allowing transfers in private companies, and many founders are from the blue cities of the Left Coast. Many founders do not want investors to be able to sell and block all transfers. But clearly what’s good for investors and good for markets is when there is a healthy secondary market, because when investors can feel an exit, even if far away, it’s an exit. If company policy is to block all transfers, it makes investors feel limited, and it makes their markets illiquid. Founders often forget once they take money from investors they have liabilities to them. This is something that publicly traded CEOs are greatly aware of every minute they are on the clock (and probably lead to many restless nights).
Markets are the ultimate balancing act, the ultimate teacher, and the ultimate mechanism to right any wrong, and to challenge the status quo. Palantir, Airbnb, Uber, and others have changed the paradigm of their industry, and fundamentally changed the way we live, although it may not always be obvious to some. Recently in Knoxville, TN we had a snowstorm that knocked out power around 6am and the garage door would not open, it could not be opened manually. Uber was there to take the kid to school, and was backed up with emergency calls due to the snow. It’s a small example but a real one, it’s something that the taxi business simply would not have addressed. Uber is a marketplace of buyers and sellers, people who need a ride and people who provide rides, it’s so simple. That’s the innovation created by Private Markets.
People may think many startups are horrible ideas, but many of those horrible ideas have revolutionized the world we live.
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