Private Explosion
It’s a known fact that a record amount of money is flowing into the public markets in this time of economic recovery. People are piling into their favorite stocks as trading and investing is a lot more accessible now, and institutions are making large bets too. A grand number of companies have entered the market during the pandemic period, through the regular IPO process or partnering with a SPAC, which has become common now.
What exactly goes on behind the scenes? Before becoming a public company, businesses are listed as private companies, which is obvious. In fact, the start-up market is hotter than ever now, with angel investors and institutional investors funnelling in hordes of money into these young companies with the hopes of a public appearance. Venture firms are committing more cash to this area of their portfolios in the form of dry powder, or money not being used but waiting to be used. This number has risen to 440 billion dollars for venture capital companies, and they aren’t worried about borrowing more money. The current economic environment of low interest rates and rising markets incentivizes this, although the Fed has plans to raise interest rates at 3 different times next year, which could slow this monster down. Venture firms are hunting for the next Uber or Airbnb, and they are willing to pay a steep price for it. The start-ups that are receiving love mostly work in the climate change business, which makes complete sense as it’s the next global problem to tackle, but you also have the electric vehicle start-ups who opt to raise money through venture capital and SPAC deals. Nonetheless, we’ll have to see which start-ups end up becoming the household names of the future, and we can look back to see which venture firms invested in them today. Do you believe this market is overheated?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
