Venture capitalists buy shares in public companies

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 point 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.

You want to send thoughts or suggestions to Technical sheet? Write to me here.

Alexandra Sternlicht

NEW

Ads on Netflix are here. After resisting ads for years, Netflix announced earlier this year that it was finally giving in. On Friday, the company provided long-awaited details about Netflix Basic with ads: Starting November, viewers can pay $6.99 a month to watch Netflix shows, with four to five minutes of ads per hour of content , according to New York Times. The move comes as Netflix has seen a drop in paid subscribers under pressure from an increasingly crowded field of streaming service rivals.

The Death of Facebook Instant Articles. Seven years ago, Facebook enlisted publishers in a new project that stored their articles on the social network’s servers. The idea was to integrate news more tightly into Facebook, making articles load faster after users clicked on links shared by their friends. But now, as Facebook’s parent company Meta shifts away from news content, Instant Articles are no longer a business priority. According to Axios, the Instant Articles format will be discontinued in early 2023.

IN CASE YOU MISSED IT

The former CEO of Walmart US left the $300 billion retailer to lead Air New Zealand. A few days later, business stopped: “We went from $100 million a week to nothing,” by Phil Wahba

Are economists too pessimistic about a recession? Why is it also worth preparing for the best scenarioby Peter Vanham and David Meyer

The IPO market may be in a dry spell, but watch these companies when it reopensby Anne Sraders

COO of Block’s Bitcoin Business Unit Explains How to Engage Employees in Emerging Technologiesby Sheryl Estrada

Andreessen-backed neobank Horowitz Current explains why launching crypto trading during a massive recession is actually a good timeby Anne Sraders

This is the web version of Technical sheet, a daily newsletter on the tech business. Sign up to receive it for free in your inbox.

Comments are closed.