This correction is not easy on the nerves.
Do you know who is probably sleeping better?
The venture capital investor, who isn’t able to look at the market value of his/her investments every five minutes. As our venture capital expert, Cody Shirk, writes below:
But this doesn’t mean some private equity investors aren’t in for a painful 2022.
In fact, there’s one corner of this market that Cody believes is due for its own correction. And if you’re beginning to build a venture capital portfolio, you need to be very careful before putting your money to work here.
So, what is it?
That’s what Cody will detail for us in today’s Digest.
I’ll let him take it from here.
Have a good weekend,
Forget Daily Volatility: Private Investing’s Promising Outlook for 2022
The continued selloff on Wall Street has been gut-wrenching. Even after the comeback that started on Tuesday (Jan. 25), the S&P 500 is still down nearly 8% year-to-date, marking its worst month since March 2020.
However, I’m not really concerned by daily fluctuations in the market… to me, it’s just meaningless noise. The bigger picture – where the world is moving – is what I prefer to focus on.
While, as an investor, I’m diversified across stocks, real estate, crypto, and random assets, like art, precious metals, and collectibles, most of my personal wealth is invested far away from Wall Street… in private companies.
Of all the investments I have, my personal stock holdings (and crypto) are the only assets I can check daily. The rest of my investments – real estate, private equity holdings, art, etc. – are nearly impossible to value day to day.
And that’s fine by me.
That’s the beauty of being a private equity investor — you don’t have to stress about the daily ups and downs of the stock and crypto markets. (I talk about all this in my twice-weekly FREE e-letter, Venture Capital Digest. (You can sign up to become a member by clicking here now.)
Instead, you can get a clear picture of what profit opportunities lie ahead just by paying attention to the broader economy and specific trends.
Right now, as the public markets experience massive volatility, I see a lot of profit opportunities ahead for private investors. (I’ll show you why and where in just a moment.).
Of course, you can’t just jump into any private company. In fact, I believe we’ll see the collapse of several mega-valued private companies this year.
So first, before we get to those profit opportunities, let’s take a look at why I think that’s true…
The Collapse of Mega-Valued Private Companies
As you can see in the chart below, an enormous amount of money flowed into private startups in 2021… and the reality is that many of those startups will fail.
***How a quant picks stocks
One area of particular concern, for me, is the fintech sector. One out of every three new privately held startups that became a “unicorn” in 2021 was fintech related. (Unicorns are private companies valued at $1 billion or more.)
Worldwide, nearly 50 new fintech companies entered the unicorn club.
That’s right. Dozens of brand-new fintech companies (many of which are barely generating revenue) are valued at over $1 billion.
To make matters worse, many of these companies are competing with each other. This means that grabbing as many users/customers as possible will be more important than the actual backend tech of each company. (The fancy backend tech is how many of those companies were able to raise massive amounts of funding in the first place.)
Now I’m not saying that private fintech investments are bad. In fact, I am extremely bullish on fintech. Our global economy is going through a massive shift in the way value is transacted, and fintech companies with breakthrough tech are driving that change.
But like I mentioned to my Venture Capital Digest readers back in December:
When you start to see a dramatic increase in numerous multibillion-dollar deals happening – in any industry – you should probably take a step back to figure out what’s going on.
The long-term outlook for fintech investments is bright… but we could see a correction in the short term.
Too many fintech companies have raised too much money… and many of them will fail.
Just look at the data…
From Boston Consulting Group:
- Q3 2021 fintech investment is 90% higher than all 2020 funding, totaling $34.4 billion globally.
- Megadeals, or funding rounds equal to or over $100 million, are driving the dramatic investment growth seen in 2021; 101 megadeals were made in Q3 2021 alone, totaling $23 billion – a 250% increase over the same quarter in 2020.
And from KPMG:
- $98 billion in fintech investment (mergers and acquisitions, private equity, and venture capital) in the first half of 2021, compared with $121.5 billion during all of 2020.
- Global VC investment in fintech reached a record $52.3 billion in the first half of ’21 – more than doubling the $22.5 billion seen in the second half of ’20.
In my opinion, participating in most mid- to late-stage funding rounds of private fintech companies is a risky move right now. Tread with caution.
But, like I said, I also see a lot of opportunity…
A Massive Shift in Investor Behavior
We are on the cusp of a massive shift in investor behavior, and you can be at the front of the line.
The days of calling up a stockbroker, placing an order, and then crossing your fingers that everything goes well is over.
The financial world, notoriously, has been extremely opaque for the past century.
Our global financial system has been engineered to reward the middlemen, those who tack on fees before the general public has a chance to act. These middlemen have bent the laws in their favor by lobbying for government-imposed regulations that exclude outsiders – aka, all non-Wall Streeters.
Retail investors have been excluded from the most lucrative investment opportunities.
But, due to recent changes in federal regulations, private investment opportunities are now available to nonaccredited investors.
But it’s not just these rule changes that are transforming the investing world. The introduction of decentralized finance (DeFi) is now handing the power back to the individual.
Instead of relying on centralized institutions, like the big banks and quasi-governmental agencies, DeFi is enabling everyday people to participate in some of the world’s best investments.
In the near future, there will be less of a division between public investments (the stock market) and private investments (like angel investing, venture capital, and private equity).
Instead, all individuals will have access to all investable opportunities, without any centralized authority subjectively charging “toll road” fees.
We’ll have traditional investment opportunities, like owning shares (or tokens) of a company.
And we’ll have many new investments, like…
- Owning fractional real estate (Realty Mogul and many others are already doing this).
- Investing in individual people (check out Rally).
- Owning a portion of entertainment royalties, like Royalty Exchange.
We’re living in a remarkable time, and as investors we have the opportunity to create massive gains that could lead to generational wealth.
Here are some of the areas that I am excited about:
- Longevity and antiaging
- Transportation (alternative fuels and autonomous driving)
- Artificial intelligence, machine learning, and automation
- The Internet of Things (IoT) and 5G
- DeFi, blockchain, metaverse, and the rise of cryptocurrencies
- Food technology
- Space tech
We cover all these topics – and more – in detail twice a week in my free e-letter, Venture Capital Digest(sign up to become a member by clicking here).
In Venture Capital Digest, I work hard to give my readers access to all the secrets… and wealth… that private investing has to offer.
They have the chance to get in on the real ground floor of breakthrough companies… and profit as they climb to be the next Amazon… Google… or Facebook. And they don’t have to worry for a minute about what the stock market is doing.
Inside each issue, I share how you can build your private wealth portfolio…
And I’ll also share the best potential profit opportunities out there right now.
Best part, it’s completely free to sign up. All you need is an email address.
And, if you act today, I’ll throw in a special free report: Top 3 Private Company Investments for 2022.
In the report I dive deeper into private investing and share three groundbreaking companies that you can invest in right now.
There are many exciting private profit opportunities on the horizon. To stay on the forefront of this new and exciting market, be sure to sign-up today.
Cody ShirkEditor, Venture Capital Digest