Private capital investors expect to increase their volume of dealmaking globally in the coming months, widening the chasm with moribund public markets.
(Bloomberg) — Private capital investors expect to increase their volume of dealmaking globally in the coming months, widening the chasm with moribund public markets.
Two-thirds of 30 investment firms surveyed by UK investment bank Numis Securities Ltd.
see an increase in the number of private companies raising capital in the next six months, according to Rachel Stott, an associate director on the bank’s growth capital solutions team. Respondents included Softbank Group Corp., Andreessen Horowitz and General Catalyst.
“While most remain deeply pessimistic about the macro environment, with nine in ten anticipating worse conditions ahead, the overarching and encouraging theme we are hearing from investors is that activity levels will pick up,” Stott said in a interview.
Even the largest startups are turning to deep private capital pools to fund investment, while shunning public market listings given declining risk appetite.
But stock market volatility has weighed on valuations recently, causing some private firms to swallow hefty markdowns.
In a dramatic reversal, buy-now-pay-later giant Klarna Bank AB in July saw its valuation slashed to $6.7 billion, from the $45.6 billion it achieved in June 2021.
Having grown up in an era of cheap credit and easy financing, many, including the likes of online brokerage Trade Republic Bank GmbH, have laid off employees in recent months to keep costs low and delay fresh funding needs.
However, some have managed to grow their valuations, such as Celonis, a software company based in Munich and New York.
In the current climate, investors are now increasingly focused on profitability, in contrast to their previous willingness to “fund growth at any cost,” said Stott.
Moreover, most expect valuations to stabilize and “see current market conditions as an attractive opportunity,” she said.
Still, even with activity expected to pick up over the next 12 months, a return to last year’s record dealmaking level is highly unlikely, Stott said.
Global venture-capital deal rounds more than doubled to exceed $500 billion in 2021 and have crossed $200 billion so far this year, within touching distance of 2020’s haul, according to CB Insights data.
Optimism among private market participants is in contrast with equity capital markets, with most bankers expecting initial public offering activity to remain subdued for the remainder of the year.
Fundraising on global exchanges has also lagged behind private markets this year, with proceeds from initial public offerings falling 66% to about $180 billion, according to data compiled by Bloomberg.
(Adds details about private funding market in fifth paragraph.
A previous version corrected spelling of Andreessen Horowitz)
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