Broad Strokes: How Public Market Downturns impacts Private Markets (Part 1)

All views are personal

As we see Public Market Downturns, Private market downturn / funding winter isn't a new phenomenon as well. Two such events transpired in 2000 and 2008. What can we learn, about the market ?

The objective is not to forecast/foretell what could happen this time but to simply to draw some lessons from US 2000/2008, so we can all be better prepared to handle the situation.

The music didn’t stop, but someone turned it way down.

Private Markets Lag Public Market Performance:

There is usually a 2-3 quarter lag between the time that public markets contract and the impact becoming fully evident in the private market in the US. (1 , 2)

• During the 2008 crisis, while the S&P500 declined 30% between Q1-Q3 2008 but new capital continued to be invested at a growing pace during this time.
• Stock market began recovering a year later → Q1-Q3 2009, private capital being invested remained depressed, it took another two quarters for new capital investment to start rising again.

• Valuations in the private market similarly lagged the public market and we down the most in Q1-Q3 2009. In the current environment we are seeing some but not widespread mark downs or write downs in the private market quite yet.

Indian markets have a strong correlation to the US markets

• US public market has already seen a correction and the market has picked up well in the last 12 months ~ 30%
• Private markets are following suit (given the 2-3 quarters of lag)
• Whereas the Indian market is still seeing a slow recovery ~9%, the Indian Private Equity / Venture Capital market which is a combination of multiple foreign + Indian LPs is only seeing partial recovery.
• The funding winter for startups might be here to stay for a couple of quarters more. My prediction Q1FY25 will be in full swing.