Wall Street Extending Research into Private Companies

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Transcript

00:00And this all comes back to the idea that there aren't as many publicly traded companies

00:03as there used to be. And companies are choosing to stay private for longer. They can get enough

00:08funding on their own. Absolutely. Let's dive right in. Look at the stats. Companies on average,

00:13the median age of a company, say 20 years back, was a private company, was seven to eight years.

00:18Today, that's about 14 years. In the startup world, being valued at over $1 billion, being

00:24a unicorn, was a badge of honor. Today, there are 1,600 unicorns. The combined value of those

00:31companies is at roughly $6.5 trillion. That itself has grown tenfold, more than tenfold,

00:39in the last decade. So a lot more institutional capital is being funneled into that space. So

00:44if you're a research analyst and your biggest user base is paying so much more attention to private

00:50markets, it behooves you to devote your resources to private markets for two reasons. A lot of these

00:55people are investing in private markets, and they're also interested in seeing how their public

01:00market investments are being affected by these companies. Oh, interesting. So if you combine those

01:04two factors, look at the shift to capital, look at the broad change in the investing landscape,

01:10it's a no-brainer. You have to spend more and more time researching private companies. What does that

01:15research look like, though? They're not going to be able to publish buy, hold, sell ratings on private

01:19companies, right? So the first challenge, you'll rightly point out, right? It's not about buy,

01:24hold, or sell, but even the more fundamental stuff. If you don't have complete financials,

01:29how do you model stuff? How do you provide useful insights? At the same time, that is also a positive.

01:35You will have access to corporates. Companies would want a greater segment of the investing society to

01:42understand them better, so they will spend time with analysts, and that's where you actually have a value

01:46add, because today, the other threat for analysts is from artificial intelligence. Right. If you have

01:52all the financials out there, if you have all the information about a company out there, a machine

01:56will be able to generate insights that rival and experience analysts' insights. However, a machine

02:02cannot walk into a meeting necessarily with a private company executive and try and understand

02:08different market forces right now. That's where there will be a value add. And look, at the end of the day,

02:14an analyst is not just an island on to themselves, right? They have to think about it as one part of

02:20building relationships with the company, and that will automatically lead to other business

02:25or for their firm with these private companies. Right.