It’s a Lie. Funds are Not Drying Up for Tech Startups – Morgan Stanley Asia Pac MD

What lack of funds for startups?

Crawford Jamieson is managing director and co-head for Asia Pacific global capital markets for Morgan Stanley. He feels there’s more capital waiting to be invested in deserving tech companies. In fact, only a minute percentage of the investible universe has been explored by investors. Here’s what Mr. Jamieson had to say on the topic.

In 2015, net out flow was 108 billion dollars of things less you can buy. And last year a 121 billion. And this by the way doesn’t even include buybacks. It’s literally looking at IPO, proceeds raised and retractions.

Another factor that suggests that the market should be right for new companies is that there hasn’t been enough supply and the investible university is shrinking. And that creates an opportunity especially for entrepreneurs and their sponsors.

There is a real shortage of companies, particularly in the internet and software space. There’s only about 16 percent of billion dollar companies with growth between 20 and 30 percent, occupying the investible universe. Software will be 11 percent of it. Even the internet company space is underrepresented here.

However, the good news is that the performance of IPOs is improving. If we look at 2016, of aftermarket performance of companies, you will see a 23 percent increase in performance. So if we link with the previous period you would have been a lot better off buying public stocks. But if you look at the last year, you will be doing very well if you’re participating in IPOs. And this is a dynamic lot of people among investors and entrepreneurs understand. There is a time where all you will really want to do is set your money in the market and any index will do.

Conversely there tends to be a flattening out time where you can only really get out performance on the buyer side, by participating in new industries. Whether they be through IPOs or whether they be a follow on offering. Last year a big thing I worked on was the 10 billion dollar transaction for SoftBank as they were selling down their Alibaba shares. The move did wonderfully as the market really returned and people did well because of that.

A final comment on private markets – it’s interesting this fact. One of things that is certainly interesting is that the universe of private companies, in terms of the value based on last rounds is absolutely huge. We are looking at 500 billion dollars’ worth of private tech companies and the number that gets me most excited [at least according to the sources] is that 49 percent of those are in Asia. Only 48 percent in the US.

So there is, in theory, more opportunity for technology investors in Asia than there is in the US on a forward going basis. And when we look at our little team at Morgan Stanley dealing with technology opportunities in Asia, and I say this internally as well, we are going to get a real ‘Super Cycle’ here and that the next 3 years in terms of capital raising for technology companies is going to be unprecedented compared to nothing like I have ever seen. At least not since I worked on CNET.com’s IPO back in 1999.

This ought to be a very interesting period. And actually a very rich environment, with different kinds of companies and different geographies I would say.