Late-stage ventures are starting to shop in the public markets

By Lucinda Shen

Amid a coronavirus-led market route that has scorched public valuations across the board, some late-stage firms better known for their private-market chops are finding opportunities on the Nasdaq and NYSE.

“Currently, private companies have unrealistic price expectations. So even though private companies grow faster, the public stuff is attractive right now—there are some awesome deals out there,” says Mitchell Green, founder of Lead Edge Capital.

Private valuations tend to lag months behind their public cohorts. So Lead Edge has been investing in small- to mid-cap software companies whose revenue multiples are far below that of their private market counterparts. Lead Edge is looking at stocks that it believes will bounce back strongly when the stock market recovers—or be acquired by buyout firms looking to deploy a record level of dry powder if valuations don’t return. Amid the market selloff, the firm has invested in Talend, Tenable, and Crowdstrike (which is up 100% since, says Green) through Lead Edge Capital IV. Up to 25% of the fund can be invested in public market stock, says Green.

And while Green turned down a broker trying to sell shares of still-private home-sharing company Airbnb that valued the firm at $30 billion earlier this month (Call me when they want $10 billion”), Lead Edge also tried to buy shares of publicly-traded Uber, but “didn’t mobilize fast enough.”

Many, especially the smaller, growth-stage shops—likely won’t dip their toes into the public markets. While Edison Partners, for instance, can technically invest in public markets, it’s “highly unlikely” the firm will take advantage of falling equity markets, says Managing Partner Christopher Sugden. It would be an overly concentrated bet for a fund of its size (their most recent, fund nine, raised $365 million), and their LPs at least are expecting private deals from the shop, rather than public ones.

But during financial recessions, growth equity firms are known to seek public market stock when private valuations look out of whack with an economic meltdown. I wouldn’t be surprised to see more of what Lead Edge is doing.