Just over 6 years ago, buried in Rock Health's 2017 year-end funding recap, we noted that public markets were shrinking, concluding with: "For now, at least, M&A is the new digital health IPO."
https://lnkd.in/gHkdg9BU
Six plus years later, the public market situation hasn't really changed. For a variety of regulatory and economic reasons, the stock market continues to shrink, and as a side effect of investor-friendly innovation (i.e., ETFs), it has become less efficient at allocating capital to new things. Meanwhile, however... PE appears to have stepped in to start filling the gap.
1. Getting Smaller
Net equity issuance has been NEGATIVE in all but 10 of the last 109 quarters, with over $7T in public market net equity *retired* since the Fed started tracking data in 1996. (https://lnkd.in/gZUdr-Ya) There's been fewer IPOs and a lot more stock buy-backs + acquisitions.
2. Less Efficient (at allocating capital)
Passively managed funds are great for public market investors but bad for capital market efficiency (because, well, they're "passive" allocators by definition). They'll soon represent about 25% of global AUM.(https://lnkd.in/g7uzPbSW)
3. PE Steps in
Contrary to public market trends, however, "buy and hold" PE continues to grow. McKinsey recently reported that as of June 2023 PE AUM hit ~$13 trillion—roughly *double* the amount just 5 years earlier, in 2018, with a record $3.7 trillion in dry powder. (https://lnkd.in/g9z3XeqA)
TL;DR: The sky is not falling, but the path to liquidity has evolved considerably in recent years.
Some things remain the same, however: Having a plan and executing it well is, as a founder or as a venture investor, the best most sure path to creating valuable, profitable business. And working with folks who get what you do, are mission-aligned, and want to see you succeed makes the journey that much better.
Independent AI Consultant #LLM #SymbolicAI
4moGood point about hallucinations and jailbreaks.