Valuations for private companies could plummet in the second half, as many startups start to run out of cash, according to General Atlantic managing director Sandeep Naik.
Speaking at the Wharton Global Forum Singapore 2023, Naik said private market valuations remain too high and will eventually start to emulate their publicly-traded peers.
“Some of these companies that raised tremendous amounts of capital in 2020 and 2021 when the markets were hot, they are now running out of cash and these companies are coming to market as we speak,” he said, without specifying the exact region or segment he was discussing.
“In the back half of this year you’ll see private markets completely start matching the valuation expectations of where they should be and there’ll be significant down-rounds in those companies,” he said.
Asia-based private equity investors have been waiting to see if the value of investments will crash, as the global economy slows on the back of geopolitical tensions, rising inflation and higher interest rates. Naik, who is head of India and Southeast Asia, reaffirmed General Atlantic’s commitment to Asia, adding that the company is focused on increasing allocation toward the region.
General Atlantic was on track to buy $500 million of shares of SVB Financial Group, the Silicon Valley-focused lender that is racing to shore up financing after losses on its portfolio. Naik didn’t comment on the matter.
The second half could present opportunities for cash-rich investors to scoop up bargains.
“There was so much tourist capital that showed up in businesses. I call it ‘Airdrop investing’ where you fly in and say ‘I just love this company, I’m going to invest’ and go back,” said Naik, whose firm manages $73 billion. “Those tourists have exited the market.”
The same views were echoed by fellow investors who spoke at the conference. Venture capital investments saw the sharpest drop in more than two decades as of November last year, surpassing the declines of the dot-com crash and the financial crisis.
G. Raymond Zage III, a former partner at hedge fund Farallon Capital who founded Tiga Acquisition Corp., said the zero-interest-rate environment has caused misguided investments.
“For the near term that’s gone,” he said, adding that another trend coming to an end is a willingness to fund growth at all costs. “You could call it the SoftBank Vision Fund era, where there was just unlimited amounts of capital to fund losses and growth in unprofitable business models, and I think that’s gone.”
Zage said he now senses a complete lack of investor willingness to fund businesses that burn cash. Instead, companies are trying to find ways to slash costs.
For those who are investing, being selective is crucial. India Alternatives founder Shivani Bhasin Sachdeva said she is putting money into the health and wellness sector, alongside technology and health solutions for women. But she warned that investors could not bet solely on themes.
“India is a complex market. It’s very difficult to say ‘hey these are the sectors that I will invest in’ and blindly follow the sectors,” she said. “The graveyard is full of investors who do that.”
