This morning I had lunch on the New York Stock Exchange, eating pastries at the epicenter of capital markets after a particularly volatile week of trading.
I was there at the invitation of venture capital firm Lux Capital, which has listed more than 200 of its portfolio companies on the NYSE, including Aeva, Cerulean and Latch. In general, this is the extent of the relationship that venture capital has with the stock market. A startup goes public and its venture capitalists sell their shares and reap the financial benefits of an “exit”.
But these are not ordinary times. Markets are in distress, inflation is at a 40-year high, the supply chain is like minestrone soup, and we may be on the brink of global war. And venture capitalists are taking a new approach to the stock market.
As the the wall street journal reported Thursday that a growing number of venture capital firms, including Accel, Lightspeed Venture Partners, Sequoia Capital and Andreessen Horowitz, are buying shares of publicly traded companies.
For Accel and Lightspeed, it’s about reinvesting in their portfolio companies. Logically, this makes sense: Accel and Lightspeed have a history with public companies like UiPath and GrubHub – they invested in those companies when they were private startups, and they have information valuable information about their business and operations. Buying their public stock is like snuggling up with a childhood stuffed animal when the hurricane hits.
And VCs could use some comfort right now, with the IPO market showing no signs of life. According to PitchBook-NVCA’s Q3 report, there were fewer releases than at any time in recent history.
What’s crazier is that venture capitalists Andreesseen and Sequoia invest in public companies that they doesn’t investing while they were startups, according to the Log. The two startup founders recently restructured to register as investment advisers, which allows them to own something other than shares in private companies, like public stocks. Sequoia has yet to reveal its holdings to the public market, but the company appears to be thinking big. Pat Grady, partner at Sequoia, said the wall street journal that the company’s growth investors will spend about a quarter of their time investing in the public markets.
The implications of the rebranding of venture capitalists to mere capitalists remain unclear. The traditional venture capital model involves investing partners becoming intimately acquainted with the companies and founders they back, often holding board seats. It’s about personal relationships as much as anything else, since private companies generally have to approve who becomes an investor. This is not the case with public companies, of course, where anyone can buy shares.
If VCs become multifaceted financial institutions, says Goldman Sachs for the Sand Hill Road set, how will the relationship between tech startups and their investors change? Does this mean venture capitalists will put more effort into grabbing portfolio companies after the public market debut?
Perhaps the biggest lesson we can learn right now is simply that we are immersed in economic uncertainty and VCs, like all of us, are just trying to make money.
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