In private markets it can an uphill battle to explain to founders and executives about the mechanics of valuations and markets. Understandably – tech founders tend to come from tech backgrounds instead of financial markets backgrounds. Many founders will say my company is valued at 30x revenue last year, and this year it should be valued at the same multiple. But what they don’t realize is why the prevailing market average was 30x in the first place. Such market-based multiples fluctuate in line with public markets in line with economic conditions over business cycles. Valuation multiples are dynamic and never meant to be static. One could use long-term average multiples as a starting point, and this multiple changes along time and the business cycle. As a result, what we’ve tried to do is to help our network of companies stay up to date on this topic so they are more informed of ‘what the weather may look like in the next 6 to 12 to 18 months’.

But typically, private market valuations lag public market valuations by 3-6 months. One could argue that this time the transmission is quicker because many private market investors have become public market investors with the help of the red-hot 2020-21 IPO market. Last year we were very cautious. We wanted to enter high-quality private businesses at reasonable valuations – just in case the macro and financial markets have a 2001 moment. This year, the private businesses who are well capitalized – or have access to deep pocketed investors – are doing fine and focused on execution. Fortunately, our investments by and large have belonged in this camp.