Wellington Management Private Investing’s Post

Are higher interest rates a unicorn killer? In this article, Will Craig and Mark Watson, members of our late-stage private equity team, share their observations on the growing importance of investing in private companies with durable fundamentals, particularly capital efficiency. Unicorns may be even rarer, but they could be stronger (and more believable) than ever.

Are higher interest rates a unicorn killer? In this article, @Will Craig and @Mark Watson, members of our late-stage private equity team, share their observations on the growing importance of investing in private companies with durable fundamentals, particularly capital efficiency. Unicorns may be even rarer, but they could be stronger (and more believable) than ever. #insuranceassetmanagementstrategygroup #insuranceassetmanagement

An interesting perspective on Private Equity and the challenges and opportunities - it introduced me to a new term The Zirpocorn ( as opposed to the Unicorn) To quote directly from the article; Profitable exits also do not depend on a robust IPO environment. From my perspective, exiting portfolio companies through sales to strategic buyers after making operational and business improvements is even more attractive. And this pathway is set to grow substantially in 2024. Secular trends in the economy such as the reshaping of geopolitics and the emergence of a new generation of artificial intelligence together signal a period of significant restructuring where firms will work to reorganise their assets and capabilities. Overall, the rapidly evolving turn towards greater scrutiny of business models and return on investment is evidence that the days of waiting a decade or more for technology firms to generate profits are over. And that’s good news. More expensive money that leads to more demands to justify valuations through business performance is healthy pressure for private equity managers. Meanwhile, investors will be moved to scrutinise even more carefully the sources of their private equity returns and understand how much of performance is coming from financial leverage, from valuation-multiple expansion, and — most importantly — from operational business improvement. We live in interesting times https://on.ft.com/3ULzKwh

Recent history shows that colossal valuations and rapid capital flow in venture capital often precede significant market corrections. This environment has prompted a return to fundamentals, where robust business models and genuine market fit are paramount. For investors, it's a time to reassess strategies and focus on sustainable growth. I think it's prudent to prioritize durability in our ventures as we move forward in this recalibrated market. #VentureCapital #Growth #StrategicPlanning #MarketInsights https://lnkd.in/eAmxf-7B

“Low interest rates helped drive company formation and follow-on funding helped valuations rise to record highs through 2021. Since then, high interest rates and other macro factors have lessened market enthusiasm for technology start-ups.” Muted 2024 outlook from Cambridge Associates on the state of private equity (and particularly VC within it). #privateequity #venturecapital #secondaries

How will the #venturecapital industry change in the year ahead? Insiders such as VCs, LPs and secondary advisors weigh in, including CapitalG general counsel and chief compliance officer Jeremiah Gordon, in this insightful piece by Maren Bannon in Forbes. https://lnkd.in/g6F_EF3g

When it comes to #startup equity, balance is key. 🧘♀️ Beware of "Dead Equity" from past #founders who no longer contribute but still hold stakes. 🚫 Equity allocations need clear vesting schedules to avoid future tangles, especially with non-active contributors. 💼 Watch out for the Venture Studio Model with high #equity for questionable returns, which could dilute your company's value. 📉 And for founders, protect your share: excessive dilution from uninformed investors can limit your control and company's agility. ⚠️ A clean cap table reflects strong governance, attracting savvy #investors. This infographic highlights "uninvestable cap tables," where equity distribution may deter future investment. Check this out. #StartupStrategy #CapTableCleanUp #InvestorReady #siliconvalleyinyourpocket #SVIYP

Founders, Here is what you need to know about raising capital right now heading into Q4 2024: 1. There's still money out there for strong businesses. Don't be discouraged! There is still record dry powder on the sidelines across every stage of venture capital. 2. Investors are prioritizing companies that can quickly demonstrate value to customers. Focus on rapid value creation. 3. Growth remains crucial. While profitability matters, showing potential for scale is key. While publicly venture capitalists speak negatively about blitzscaling, secretly they are capitalists and growth in this market is going to get attention. 4. Have a clear plan for navigating potential economic headwinds. Investors want to see you're prepared. You should think like an analyst at Morgan Stanley for at least one day a week and spend the rest selling and building. Capital is vital in today's competitive landscape. You need resources to capture customer attention in a crowded market. Remember, the landscape is always changing. Stay adaptable and keep building! What strategies are you using to attract investors in this environment?

Over the past decade the venture industry has outperformed other asset classes. However, that size is now a liability, raising the bar for returns at a time when exits are hard to find. With cash distributions to LPs at their lowest since the global financial crisis, the need for alternative funding solutions has never been greater. With the IPO market yet to fully rebound, private investors offer a crucial lifeline. Unlike traditional venture capital, private investors bring flexibility, speed, and personalised engagement—essential in today’s uncertain market. 🔹 Why Private Investors Matter Now More Than Ever: 1. Flexibility: They can adapt quickly to market changes, offering bespoke solutions. 2. Speed: Faster decision-making processes mean quicker access to funds. 3. Personalised Engagement: Building strong, direct relationships with founders. In these times, aligning with private investors could be the strategic move that makes the difference. Whether expanding your reach to Europe and Australia during the summer dip or leveraging investor events for further exposure, staying proactive is key.

Surprisingly, the best venture capitalists and investors don't start with the numbers. When founders seek investments from VCs, they often believe it's all about presenting impressive financial projections and growth metrics. But the numbers are the second layer. That's just due diligence. The most discerning VCs look beyond the flashy numbers. So, then, how do you get to #duediligence? How do you get a VC to give you the time of day? #VC firms seek out companies held back by constraints in human capital, processes, or technological limitations. Places where injecting a little money can make a big difference. Because money is what investors have an abundance of. You know what they don't have an abundance of? Understanding of a niche market, a differentiated and distinctive value proposition, and a clear roadmap to build a company around a problem. A clear "why." When pitching to VCs, a clear why is your superpower. They're after massively scalable companies, and a good "why" is always scalable. People, processes, and purchases enable growth. They don't cause it. A good strategy causes it. You only need three things. Before you focus on the financials, please make sure that you have a rock-solid vision, a phenomenal product-market fit, and a clear roadmap for growth. When you articulate a powerful purpose and vision, back it up with a well-crafted #strategy, and demonstrate the potential for scaling with the right resources, you'll be well-positioned to attract the investment you need to take your company to new heights.