Forget the daily volatility: The bright outlook for private investment in 2022
This correction is not easy on the nerves.
Do you know who probably sleeps the best?
The venture capitalist, who is unable to look at the market value of his investments every five minutes. As our venture capital expert, Cody Shirk, writes below:
But that doesn’t mean some private equity investors aren’t expecting a painful 2022.
In fact, there is a corner of this market that Cody believes needs its own correction. And if you are starting to build a venture capital portfolio, you need to be very careful before investing your money here.
So what is it?
That’s what Cody will tell us about in today’s article. Digest.
I’ll let him take it from here.
Have a nice week end,
Forget the daily volatility: The bright outlook for private investment in 2022
The continued sell-off on Wall Street has been heartbreaking. Even after the comeback that began on Tuesday (January 25), the S&P 500 is still down nearly 8% year-to-date, marking its worst month since March 2020.
However, I’m not really concerned with the daily fluctuations of the market…to me, that’s just meaningless noise. The bigger picture – where the world is moving – is what I prefer to focus on.
While as an investor I’m diversified into stocks, real estate, crypto, and random assets, like art, precious metals, and collectibles, most of my personal wealth is invested away from Wall Street… in private companies.
Of all the investments I have, my personal stock (and crypto) holdings are the only assets I can check on a daily basis. The rest of my investments – real estate, private equity funds, art, etc. – is almost impossible to assess on a day-to-day basis.
And that’s fine with me.
That’s the beauty of being a private equity investor – you don’t have to worry about the daily ups and downs of the stock and crypto markets. (I talk about all of this in my FREE bi-weekly e-letter, Venture Capital Summary. (You can register to become a member by click here now.)
Instead, you can get a clear picture of upcoming profit opportunities simply by paying attention to the broader economy and specific trends.
Right now, with public markets experiencing massive volatility, I see plenty of profit opportunities for private investors. (I’ll show you why and where in a moment.).
Of course, you can’t jump into just any private company. In fact, I believe we will see the collapse of several very high value-added private companies this year.
So first, before we get to these profit opportunities, let’s see why I think this is true…
The collapse of high-value private companies
As you can see in the chart below, a huge amount of money was poured into private startups in 2021…and the reality is that many of these startups will be to fail.
***How a quant chooses stocks
One area of particular concern to me is the fintech sector. One in three new private startups that became a “unicorn” in 2021 were fintech-related. (Unicorns are private companies valued at $1 billion or more.)
Around the world, nearly 50 new fintech companies have entered the unicorn club.
It’s true. Dozen of brand new Fintech companies (many barely generating revenue) are valued at over $1 billion.
To make matters worse, many of these companies are in competition with each other. This means capturing as many users/customers as possible will be more important than each company’s actual backend technology. (Sophisticated backend technology is the number of such companies that were able to raise massive funds in the first place.)
Now, I’m not saying private investment in fintech is bad. In fact, I’m extremely bullish on fintech. Our global economy is going through a massive change in the way value is traded, and fintech companies with cutting-edge technologies are driving that change.
But as I mentioned to my Venture Capital Summary returning readers in December:
When you start to see a dramatic increase in many multi-billion dollar transactions – in any industry – you should probably take a step back to understand what is going on.
The long-term outlook for fintech investments is bright…but we could see a near-term correction.
Too many fintech companies have raised too much money…and many of them will fail.
Just look at the data…
From Boston Consulting Group:
- Investment in fintech in Q3 2021 is 90% higher than all funding in 2020, totaling $34.4 billion globally.
- Megadeals, or funding rounds equal to or greater than $100 million, are driving the dramatic investment growth seen in 2021; 101 mega-deals were closed in the third quarter of 2021 alone, for a total of $23 billion, an increase of 250% compared to the same quarter in 2020.
And from KPMG:
- $98 billion in fintech investments (mergers and acquisitions, private equity and venture capital) in the first half of 2021, compared to $121.5 billion in all of 2020.
- Global venture capital investment in fintech reached a record $52.3 billion in the first half of 2021, more than double the $22.5 billion recorded in the second half of 2020.
In my opinion, participating in most mid-to-late-stage funding rounds of private fintech companies is a risky move right now. Walk with caution.
But, as I said, I also see a lot of opportunity…
A massive shift in investor behavior
We are on the cusp of a massive shift in investor behavior, and you can be on the front line.
Gone are the days of calling a stockbroker, placing an order, then crossing your fingers that everything went well.
The financial world, notoriously, has been extremely opaque over the past century.
Our global financial system was designed to reward middlemen, those who impose fees before the general public has a chance to act. These intermediaries have circumvented the laws in their favor by pushing for government-imposed regulations that exclude outsiders – that is, all non-Wall Streeters.
Retail investors have been excluded from the most lucrative investment opportunities.
But, due to recent changes in federal regulations, private investment opportunities are now available for non-accredited investors.
But it’s not just these rule changes that are transforming the world of investing. The introduction of decentralized finance (DeFi) now returns the power to the individual.
Instead of relying on centralized institutions, like big banks and quasi-governmental agencies, DeFi allows ordinary people to participate in some of the best investments in the world.
In the near future, there will be less of a divide between public investments (the stock market) and private investments (like angel investing, venture capital, and private equity).
Instead, all individuals will have access to all investment opportunities, with no centralized authority subjectively charging “toll road” fees.
We will have traditional investment opportunities, like owning shares (or tokens) of a company.
And we will have many new investments, like…
- Own fractional real estate (Realty Mogul and many others already do).
- Invest in people (see Rally).
- Owning a portion of entertainment royalties, such as Royalty Exchange.
We live in remarkable times, and as investors we have the opportunity to create massive gains that could lead to generational wealth.
Here are some of the areas I am passionate about:
- Longevity and anti-aging
- Transportation (alternative fuels and self-driving)
- Artificial Intelligence, Machine Learning and Automation
- The Internet of Things (IoT) and 5G
- DeFi, blockchain, metaverse and the rise of cryptocurrencies
- Food Technology
- Space technology
We cover all of these topics – and more – in detail twice a week in my free e-newsletter, Venture Capital Summary(register to become a member in click here).
In Venture Capital SummaryI work hard to give my readers access to all the secrets…and wealth…that private investing has to offer.
They have the chance to step into the real ground floor of game-changing companies…and enjoy their rise to become the next Amazon…Google…or Facebook. And they don’t have to worry for a minute about what the stock market is doing.
In each issue, I share how you can build your private wealth portfolio…
And I will also share the best potential profit opportunities right now.
Even better, registration is completely free. All you need is an email address.
And, if you take action today, I will release a special free report: Top 3 private company investments for 2022.
In the report, I dive deeper into private investment and share three game-changing companies you can invest in at present.
There are many exciting opportunities for private profit on the horizon. To stay ahead of this exciting new market, be sure to register today.
Cody ChirkEditor, Venture Capital Summary