![]() Many companies are not looking to test the markets for a capital raise in the current environment with falling valuations in the private markets and supply and demand now in the favour on the supply side.Ĭapital Demand Now Up to 3.5x Capital Supply In 2023, this tension has resulted in many companies being able to streamline operations while maintaining and growing their topline, resulting in a far more efficient and scalable business. With less capital availability, founders need to be more capital efficient and thoughtful on how capital is deployed to ensure there is a strong return on investment. The tension here is to find the balance of continued growth but not at the expense of profitability. The availability of capital in 2023 is scarce, and founders are finding that they need to cut back on growth to ensure their business model is sustainable. Capital is required to grow a business and also execute on ‘experiments’ which could be product improvements and research & development that result in finding alternate sources of revenue streams. Investors require companies to grow in order to realise a return on investment but with the era of ‘cheap money’ gone, herein lies the tension of growth and profitability. The best funding or exit path for a company can be pursued because these two options exist in the first place for founders to weigh up the costs versus benefits. The common thread right now is that the bar is high for capital from both private and public markets. Acquisition currency and the ability to raise capital quickly to execute growth plans.Reputation and signaling benefits as a listed company is synonymous with being more trusted given the higher governance requirements as well as audited accounts, which are important for customers, suppliers and employees.Instant liquidity for all shareholders which includes founders, existing investors, and employee shareholders and also a daily marker on valuation.However, a listing has many benefits including: Recently, IPOs have received negative press due to the perceived value destruction upon listing (but this is also partly attributed to broader market volatility), poor aftermarket performance, increased time commitments, continuous disclosure obligations, and cost burdens from maintaining a listing. ![]() So a clear distinction is required to be made between “patient” and “forever” capital. However, the tension here is that unless a business is profitable, it is more likely than not that there are third party capital investors who not only require a return on their capital but also a liquidity event, often within a set time horizon. This has shifted the discussion to companies potentially staying private forever on the assumption that the private market exists to fund these companies into perpetuity. In recent years, there has been a flood of capital into the private markets, enabling companies to ‘stay private for longer’. In 2023, some of these tensions are brought to the fore. Tensions involve competing demands, which result in better decision-making, more creativity, and innovative solutions. The word “tension” generally has negative connotations, but tension can actually be a positive driver in the private markets for both investors and companies. By Karen Chan, Portfolio Manager, Perennial Private Investments
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