Dear all,
There was momentum in Tech * Investments last week with two main events that unfolded at the same time: on the one hand, VivaTech, which was the occasion to celebrate the strength of the French startup ecosystem, and on the other hand, SuperReturn Berlin, the annual meeting of Private Equity in Europe where the resilience of this asset class was continuously highlighted by reference investors at the event.
Indeed, the current context is a difficult one: Private Equity and Venture Capital are being strongly impacted by the combination of inflation, monetary tightening and volatility. Per Pitchbook1, the rise in short-term interest rates, and, perhaps as important or more, the market expectations of further tightening has been the primary driver of market turmoil. The corresponding increase in discount rates has led to a fundamental repricing of valuations and a sharp rotation away from stocks with high implied growth rates, i.e. Tech stocks. The question today is whether the pricing dynamics ongoing in the public markets impact or will impact the private markets in Tech, a dislocation between the two seeming quite unlikely. Though data has started to appear on early-stage financing pointing out to strong discounts in valuations, it seems to us that the answer should be nuanced through a distinction between those companies that are profitable and with a proven business model, and that constitute perfect targets for Private Equity investors, to the difference of companies whose path to profitability has yet to be clarified. A question that is many discussions these days it seems!