Hey Monkeys,
So the WSJ just put out an article today which confirms much of what I and many others have suspected for a while - that the widespread funding of startups with questionable paths to profitability seems to be coming to an end.
In my opinion, the advent of funding these unprofitable enterprises has been a direct result of sustained quantitative easing and post-recession macroeconomics. TL; DR, the smart money went into private markets because (1) Bonds have had nowhere to go but down for nearly a decade, (2) the state of interest rates funneled people out of the bond markets and into equities, resulting in high prices that increasingly have nowhere to go but down as well.
There are other cultural and technological factors that in my opinion contributed to this shift in investing practices - like the fact that there are meaningful technological advances in AI that investors would and should want to be a part of, and the fact that many of these early stage enterprises perhaps **are ** better fostered through the type of control structure that PE/VC style investing offers.
However, I think that the economic fascination with these novice, "sexy" enterprises is largely driven at a fundamental level by the need for managers to post stellar returns at a time when the normal vehicles just don't offer those types of returns. And so in a tepid bond and equities market, the smart money charged head on into the heady territory of growth investing.
I am glad to see investors pulling the plug on the least feasible of these enterprises, or in other words, to see that gravity is finally pulling it all back down.
But I am curious to know - where does the smart money go for shelter when rates are going up, public equities are overvalued, and the market for private capital is bifurcated between huge "unicorns" that don't need your money, and small startups hanging on for dear life that you don't want to give it to?
Also, what will be the secondary effects of the coming exodus from Silicon Valley? I'd like to think that private markets beget private losses, but am I missing something here?
