Boardroom IntelligenceCategory

Building and Developing Private Market Portfolios in a Downturn

By Jefferies Editorial Team
2 min read

Speaking at Jefferies’ 2023 Private Internet Conference, Seyonne Kang, Partner at Stepstone Group, shared insight into the private market opportunities awaiting investors and entrepreneurs. She posits that private markets hold great potential, provided companies balance operational efficiency with their desire for future growth.

Trends and Opportunities in the Private Market

As global financial markets continue to ebb and flow, Kang spotlighted a surge of activity in secondaries. “We’ve been very, very busy on the secondary front,” she shared, noting Stepstone’s involvement in direct secondaries and fund interests.

On the fund side, opportunities are diverse. Kang is involved with a range of secondary investments, from GP-led restructurings to LP tenders and strip sales. “These are bottom-up, analysis-driven fund investments – a busy and exciting area.”

In the primary sector, the climate is also promising. Company valuations are favorable, leaving investors optimistic and ready to re-engage. “It’s a great time to put money to work,” Kang stated, citing a shared interest among investors to deploy dry powder.

If this trajectory continues, she believes the forthcoming years will prove lucrative for both private market investors and entrepreneurs.

Balancing Growth and Efficiency in a New Business Landscape

Kang shifted her focus to the challenges confronting management teams. She stressed the need for companies to balance their growth aspirations with operational efficiency. In recent years, “when capital was easy,” companies could hide inefficiencies and continue to attract dollars. “Today, we’re in an execution-wins environment,” Kang said. Efficiency is the hallmark of success.

In 2023, the era of unchecked spending is in the rearview. Kang juxtaposed companies’ liberal spending habits between 2018 and 2021 with the current climate, where every dollar is scrutinized. “Every project, every sales call, every flight has to be justified,” Kang said. “Companies feel like they need 24 months of cash on hand.”

This financial prudence was echoed in Grant Thornton’s recent CFO survey, in which 58 percent of executives identified cost optimization as their biggest concern in 2023. Across industries, companies are downsizing and restructuring to cut spending.

For startups, these patterns are partially due to longer intervals between funding rounds. The average time lapse between series A and B funding is now 31 months – the longest span in at least 12 years. Founders feel pressure to conserve dollars or consider new fundraising rounds, as their capital begins to run dry.

The Human Element: Leading with Empathy

Kang also highlighted the emotional repercussions of these business challenges. The decisions and pressures facing companies are taxing. “It’s hard to say no, to restructure companies, to kill projects,” she said.

Investors, she suggests, ought to check in on management teams, empathizing with their struggles and reiterating the importance of consistent communication. “It’s important to have those conversations as people first.”

She wrapped up her insights on a forward-looking note, highlighting the positive impact of adversity on private sector innovation. In periods of economic downturn, truly innovative ventures garner more funding than those offering incremental improvements.

Kang anticipated a new innovation wave, spurred by technologies such as low-code and no-code software platforms, cloud computing, and powerful new AI technology. She hailed these tools as transformative, capable of elevating single engineers into a powerhouse of productivity. Kang’s comments on the shifting business climate reflect a balanced and insightful perspective. Despite the evident challenges, there are rich opportunities for growth and investment. Discipline, innovation, and a human touch will pave a successful path forward for investors and management teams alike.