MORGAN STANLEY AT WORK
access to it . They need access to it now , probably more than they have in the last 5 to 10 years .”
Private market liquidity and the investment community in a downturn Questions , however , remain . How do private companies fit into all this , particularly at a time when investment is activity low ? And how can they generate enough capital to remain as competitive as their public counterparts ?
Adams says it all comes down to arranging the right types of liquidity events and setting up a strong framework .
“ As an employee , you ' ve been helping generate value over the period that you ' ve been employed , and you ' ve seen prices go up . Now , we ' re starting to see company valuations level out or go back down . But investors still believe in these businesses . Some of the economic factors at play here are not necessarily because these businesses aren ' t good businesses worth investing in .”
She points out that the tough climate doesn ’ t mean investing opportunities won ’ t happen ; rather , in some ways , the opportunities are greater . “ It ' s an interesting opportunity for investors who have probably
“ We ’ ve seen increasing amounts of capital flow into the private markets … companies are now staying private much , much longer ”
KEVIN SWAN CO-HEAD OF GLOBAL PRIVATE MARKETS , MORGAN STANLEY AT WORK been sitting on the side lines when valuations were higher and saying , ‘ That price point feels too high for me to start to get involved ’, and take positions in companies that they truly believe in at a price that seems a little bit more reasonable and sound , and start to be able to play the long game .”
Private market liquidity can be beneficial Not going public but enabling employees to gain value from their stocks can result in gains all around , without the demands of going public . For example , if a group of two or three investors is looking to take a position and a group of 100 employees is ready to sell to them , it reduces the number of shareholders on the company ’ s cap table .
“ This can potentially be really beneficial to all parties ,” Adams states .
She points out that the benefit of gaining liquidity works on two levels for companies . Firstly , by letting them sell directly to an investor , they are allowing liquidity for employees without dilution . The process also provides an opportunity to clean up the cap table , the records of stock ownership , and reduce the number of actual shareholders .
One downside , however , is that the process may force companies and individual shareholders to come to terms with the delta in current valuations versus where they were a year ago . The gap in valuations from a company ’ s last fundraising round and what investors are willing to pay today is widening in private secondary markets .
“ Something that we think our clients are still coming to terms with is taking the hit on price now and knowing that , if this is a good business , it will outlast the market conditions that exist today ,” she says .
42 March 2023