Private market investing has seen a surge in recent years, attracting an increasing number of investors and companies alike. Explore the increasing prevalence of private market investors and the factors driving this trend.

Growth of the Private Markets

According to a 2022 report by the Economist, the private market has grown exponentially in the last decade, with the number of private companies increasing by more than 60% globally[1]. This growth was driven by several factors, including the low-interest rates seen up until 2022, a search for higher returns, and the desire for greater control over investments.

One of the primary reasons for the increasing prevalence of private market investors was the low-interest rate environment. With interest rates at historic lows, traditional investment options like bonds and stocks were no longer delivering the returns investors desired to meet their financial goals. In contrast, some private market investments, such as venture capital and private equity, historically have delivered higher returns than public market investments [2].

Moreover, the private market may provide investors with access to a wider range of investment opportunities than the public market. In the public market, investors are limited to buying and selling shares of publicly traded companies. In contrast, the private market provides access to a diverse range of investment opportunities, including private equity, venture capital, real estate, and infrastructure.

Another significant factor driving the increasing prevalence of private market investors is the desire for greater control over investments. Private market investors can take a more active role in the companies they invest in, providing guidance, and expertise to help the companies grow as a strategic investor. This level of involvement is usually not possible in the public market, where investors are often limited to buying and selling shares.

Opportunities for Private Market Investors

Innovation

Private market investments offer investors the opportunity to invest in innovative startups and emerging industries. Venture capital investments, in particular, may provide investors with access to high-growth startups that are often not available in the public market. These investments can be risky but have the potential for high growth.

Access

In addition to institutional investors, private market investing has also become more accessible to individual investors. Online platforms like MicroVentures provide accredited investors with access to private market investments in startups and emerging companies. These platforms offer investors the ability to invest in companies they resonate with, while also providing them with access to a broader range of investment opportunities.

Economic Impact

Private market investing has also had a transformative effect on the economy as a whole. The growth of the private market has enabled companies to stay private for longer, bypassing the need for an initial public offering (IPO). This trend is particularly prevalent in the technology industry, where companies like Uber and Airbnb remained private for several years before going public[3]. By staying private for longer, these companies were able to focus on long-term growth strategies without the pressure of quarterly earnings reports and shareholder demands.

Implications of Private Market Investing

The growth of the private market has had implications for public markets. As more companies stay private for longer, there may be fewer opportunities for public market investors to invest in high-growth companies. This has helped contribute to the trend of declining public market participation, as more investors turn to the private market in search of higher returns.

Moreover, the increasing prevalence of private market investors has raised concerns about inequality and access to investment opportunities. Private market investments are typically only available to accredited investors, which are individuals or entities that meet certain income or asset requirements. This means that many investors are excluded from participating in the private market, limiting their ability to access potentially high-growth investment opportunities.

To address these concerns, there have been calls for greater regulation and transparency in the private market. Regulators have already taken steps to increase oversight of private market investments, requiring investment platforms to disclose more information about the companies they invest in. However, there is still much work to be done to ensure that private market investments are accessible to a wider range of investors.

Final Thoughts

In conclusion, the increasing prevalence of private market investors is a significant trend in the investment world. The private market is attracting an increasing number of investors, and the trend is likely to continue. According to McKinsey, private markets Assets Under Management (AUM) reached $11.7 trillion in 2022, growing at an annual rate of nearly 20% since 2017[4].

The private market can offer investors access to a wider range of investment opportunities, higher potential returns, and greater control over their investments. While private market investing comes with its own set of risks and restrictions on who can invest, the trend is expected to continue. If you are interested in private market investing, it is important to do your research and work with a reputable investment platform like MicroVentures to ensure you make informed investment decisions.

Are you looking to invest in private market investment opportunities? Sign up for a MicroVentures account to see what opportunities we currently have available!

Want to learn more about investing in private companies? Check out the following MicroVentures blogs to learn more:

• The Impact of COVID-19 on Private Equity
• Private Markets 101
• The Future of Crowdfunding
• The Evolution of Startups: From Garage to Global

 

[1] https://www.economist.com/special-report/2022/02/23/private-markets-have-grown-exponentially

[2] https://fortune.com/2022/07/05/private-equity-stocks-public-markets-next-recession-pavel-ermoline/#:~:text=Data%20from%20academics%20and%20various%20providers%20analyzing%20PE%20returns%20historically%20shows%20that%20PE%20outperforms%20public%20markets%20throughout%20business%20cycles%2C%20with%20the%20internal%20rate%20of%20return%20(IRR)%20picking%20up%20considerably%20following%20recessions

[3] https://www.hamiltonlane.com/en-us/insight/b3d3560b-bc62-40c2-942d-24027ab15fdb/private-market-investing-staying-private-longer-le

[4] https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/mckinseys-private-markets-annual-review

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.