“…the line between public and private markets continues to blur.”
Forecasting
// I understand why people make predictions at the beginning of the year. First, it’s a staple to anyone’s content strategy. And, for public market investors it also makes sense as you’re taxed on a yearly basis, it’s a way to benchmark your firm, and you may be getting paid on the last 12 month’s performance.
But as a private investor, why lock yourself into one year? Early-stage investors should write their predictions every five years or so therefore giving them more time to be right. They kind of already do this when they state their thesis when raising a new fund. Again I’ll defer to Fred Wilson as to why a VC might do yearly predictions:
‘I find it useful to think about what we are in for. It helps me invest and advise the companies we are invested in. Like our investing, I will get some of these right and some wrong. But having a point of view is very helpful when operating in a world that is full of uncertainty.’
However, to take a slightly different angle, I thought I’d lean on and recycle two quotes from last year about placing bets on the future.
First, from Brad Gerstner of Altimeter Capital:
‘Sometimes as an entrepreneur, you have to over-index to courage. You have to think about the world that you wish to exist. Not the one that does exist. As an investor, I’m constantly looking at the distribution of probabilities that those outcomes will in fact be achieved.’
Next, from Philippe Laffont of Coatue Management:
‘I truly believe that in every portfolio you need to ask yourself what is going to be more relevant five to ten years versus today.’
Also, Laffont, who just started on Twitter, and whose bio states, ‘from seed to public, lifecycle investing, 7-year predictions,’ wrote a related thread this week worth its weight in gold.
So, using Laffont’s and Gerstner’s ideas to frame my thinking and set my timeline, here are my ‘predictions’ on where I think the private/public market will be in seven years:
Instead of a 60/40 portfolio, investors will talk of their portfolios as 50/50. 50% public and 50% private (or alternative). Regarding alternative, I’m including private equity, private credit, venture, early-stage investing, secondary trading, cryptocurrencies, and the alternatives to the alternatives like wine, art, digital art, cars, shoes, etc.
Most big institutions and funds will continue to grow their private market strategies. Having an allocation to the private market will be table stakes when raising new funds.
For a public market investor, buying a basket of pre-merger SPACs will outperform as a strategy vs. buying a basket of direct listings. I’m assuming you’re buying the less speculative SPACs originated by reputable sponsors (i.e. Chamath, Michael Klein, etc.) I would argue the risk/reward profile of a SPAC portfolio that merges with less mature companies actually looks better from an investment perspective than a portfolio of fully baked direct listings.
EquityZen will be acquired by Goldman or JPMorgan.
Forge will be acquired by Morgan Stanley.
Carta will be acquired by the Nasdaq.
Both successful, but the Dream Exchange will have 5x the listings than the LTSE.
tZERO and other marketplaces for digital securities will fundamentally change the landscape for clearing and settlement in the public and private markets.
Regarding industries that were accelerated by Covid, investments in healthcare, payments, e-commerce, and gaming startups will outperform investments in delivery and remote-work startups. Regarding the latter, my theory is people realize they actually like being with other people.
Snowflake will be a better investment than Amazon.
You’ll start hearing about the Snowflake “mafia,” a la PayPal. Both investors and entrepreneurs will recycle capital and know-how back into the markets.
Passive investing will control 75% of the public market.
Volatility, or rather the VIX, will have a higher mean in the next seven years vs. the last decade. My market is 15 at 42, ‘until the cows come home.’
Averaging 3 a year, by 2027, Chamath will be on his 28th SPAC IPOBB.
Backcasting
// Let’s say you’re going to try to make this future a reality. How do you want to position your portfolio and/or company when the fusion of the private/public markets comes to fruition? As an investor or entrepreneur, you could apply the Bizarro Strategy I talked about a few weeks ago, or another way could be through Mike Maples Jr.’s idea of “backcasting.”
Maples Jr. wrote about this in April of last year in How to Build a Breakthrough where he explains how “backcasting” is the opposite of forecasting. He writes…
‘Breakthrough builders are visitors from the future, telling us what’s coming. They seem crazy in the present but they are right about the future. Legendary builders, therefore, must stand in the future and pull the present from the current reality to the future of their design.’
So, with that in mind, my plan is to visit the future where all private assets are liquid, accessible, and transparent….and then….I’ll work backward as I move forward.
__________
Maples Jr. talks more about the idea in his interview on the Paradox Podcast. Here are the PodcastNotes to that episode.
Here is my Bitcast clip where he shares one of his favorite Muhammad Ali quotes and how it relates to “backcasting.”
Another Big Fish Swimming Downstream
“How’s your (private market) portfolio?..... I’d say strong………to…quite strong.”
// Over the break it was announced Dan Loeb’s Third Point was raising its first dedicated venture capital fund. Third Point’s hedge funds have been investing in private start-ups for two decades, but the new fund would be its first standalone vehicle for the investments.
From the Financial Times… “The new fund is the latest example of a hedge fund manager moving deeper into Silicon Valley as public market investors seek new sources of returns in private markets.”
In his newsletter this week, There Are No Lanes, Howard Lindzon highlighted a tweet from Dan Loeb’s Twitter where he explained…
‘It’s difficult to compete as an investor now if you don’t expand your investable universe into private securities. First, you miss the best entry points; second, you will not be tuned in to the new innovators that may be about to disrupt your public cos.’
Private & Public News From the Week
// Private
Lacework Raises $525M Led by Sutter Hill and Altimeter Capital (TechCrunch)
B2B E-Commerce Startup Udaan Raises $280M Led By Octahedron Capital (TechCrunch)
Color Inks $1.5B Valuation With $167M Series D (Crunchbase)
Starburst Data Raises $100M From Andreessen Horowitz (Bloomberg)
Roblox Raises $520M Ahead of Planned Stock Market Direct Listing (CNBC)
Affirm Sets IPO Price Range (Crunchbase)
// Public
Snowflake Rally Defies End of Lockup on Millions of Shares (Bloomberg)
SoftBank’s Son Is Poised for Another IPO Windfall in 2021 (Bloomberg)
2020 SPAC Boom Lifted Wall Street’s Biggest Banks (WSJ)
Goldman Traders Score $2 Billion in Commodities’ Comeback Year (Bloomberg)
Fidelity’s Challenge Is to Turn Day Traders Into Longtime Clients (WSJ)
Dizzying Valuations, IPO Craze Tick Boxes on Bubble Checklist (Bloomberg)
// Longer Reads
Waiting For the Last Dance by Jeremy Grantham
SPAC Magic Isn’t Free by Matt Levine (who’s back from hiatus)
The Roblox Gambit by Alex Wilhelm
5 Predictions for 2021 by Tomasz Tunguz
Sports Betting: The Next Major Market by Joseph Pompliano
Data
Number of Domestic Operating Companies Listed on Major U.S. Exchanges, 1980 - 2019
Source: Jay R. Ritter
// Thanks.
This newsletter is created and authored by Bryce Tolman and is published and provided for informational purposes only. The information in the newsletter constitutes the Author’s own opinions. None of the information contained in the newsletter constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You understand that the Author is not advising, and will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in the newsletter may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.