After enjoying a period of unprecedented growth, private markets have recently shifted from the easy money era to carefully tailored investment approaches. Challenges in valuations and tighter credit conditions brought on by tightened monetary policy will continue to pressure private investors for the foreseeable future.
Private equity exits will probably remain low in the year ahead, but seismic shifts in newly adopted ways of life and business will provide the next generation of growth drivers in private markets.
Transformations in digital commerce, food innovation and environmental sustainability hold massive potential for private investors in lieu of current macro headwinds.
Food innovation
The future of the $1 trillion U.S. food industry is technology, or “food tech” as it has already been coined. Early forms of food tech took shape in the late 1700s during the British Industrial Revolution with the emergence of industrialized farming and agriculture. Since then, the growing global population has necessitated further innovations to sustain our world’s food supply and ensure it reaches as many corners of the earth as possible.
One obvious flaw in the U.S. food system – made painfully aware during the pandemic – is the need for innovation in sustainable supply chains. Much of the food distributed within the United States is done so by only a handful of companies. The FBI reported that during the pandemic, the network of a global meat processing company was attacked, resulting in the shutdown of some US plants. The result was a shortage in the meat supply and a price surge of 25 percent.
Companies that specialize in cybersecurity will be sought out by the food industry in the years to come, and will present significant investment opportunities for private markets. Other areas of potential growth may include regional distributors that ease the burden of major U.S. suppliers, but maintain significant product volume.
The supply of food itself will also considerable growth opportunities. By 2030, food demand is forecasted to rise by 30 percent, but climate change threatens the ability of farmers to keep up. Staple food items like corn and wheat are projected to decline by 30 percent by 2030 due to climate change according to the United States Agency for International Development – while global agricultural production must rise 70 percent by 2050 in order to sustain the world’s growing population according to the World Bank.
There have been a number of innovations already in the food tech space. A wave of vertical farming, efficient indoor farming, and plant protein substitutes have hit the market through startups and other small companies, but the transformation to more sustainable food systems will need considerable financing to maintain demand.
As startups explore lab-grown meat, farming alternatives or even 3-D printed food, private markets will play a major role and have the opportunity to enter across different asset classes.
Venture capital investing in food tech and agritech startups has been steadily rising over the last few years, and private equity will play a major role in the investment of small-to-mid-size companies and startups offering supply-chain and production alternatives. Private debt investors are also expected to play a major role, specifically in the vertical and indoor farming markets. This will also provide opportunities for real estate investors, as companies seek out space to conduct innovative farming practices.
Farmers will need funding to transition to transformative agriculture, and private equity has already played a significant role in the funding of agricultural companies that produce natural supplements and feed for livestock.
The asset pool in food tech and farming looking towards the future is rich in opportunity for private investors to enter markets that are already in high demand and expected to rise along with the global population and increased need for sustenance.
Decentralization
The mega-trend of decentralization has taken the world by storm, and yet continues to provide ample opportunity for investors – and especially so for private investors. Decentralized network providers are already seeking private investors given the nature of their businesses.
Decentralization can be applied to numerous technologies, but overall delineated by the desire for a peer-to-peer way of transacting and transforming business operations. The decentralization movement seeks to have the users of networks that complete commercial transactions also own those networks and ultimately share in the end profit. Perhaps the most well-known example of this is blockchain technology.
Traditionally, consumers transact through banks. One deposits their own funds into a third-party institution, the bank, which then insures whatever transaction comes thereafter associated with that account. On a decentralized network, the bank is removed from the transaction entirely and all functions are performed digitally and anonymously ledger using the blockchain network.
For private investors, this enables an entire new system of commerce.
In the past, traditional venture capital and private equity investors with access to proprietary deal flow would spend time raising capital to deploy by accredited investors – primarily high-net worth individuals, endowments, pensions etc. The introduction of a decentralized network does away with the traditional limitations of this process, and opens private investing to an entirely new way of doing business.
Additionally, blockchains, cryptography and the introduction of smart contracts facilitate the launch of virtual marketplaces based in code. New software has emerged that scales business operations and permission-less interactions, and self-directed business actions have allowed an entire new, virtual world to emerge.
One thing that has become abundantly clear is the new relationship between consumers and commercial enterprise.
This gives private investors a well of new opportunity. The infrastructure itself of these massive new networks is an area that has not yet been saturated but will continue to need the proper funding to maintain demand.
To trickle down further, Web 2.5 bridges – virtual infrastructure “bridges” that link some platforms to one another – and other UX and essential services will provide areas of expected growth in support of virtual marketplaces.
Gaming and NFTs, two more controversial areas that represent the more volatile areas of the decentralized networks, are still expected to bring opportunities for investors and continue to maintain private interest. Blockchain gaming, which holds significant popularity in Asia, allows players to profit from the time, skill and effort they put into the play. Additionally, they also hold ownership of the rewards (be it tokens, avatars, etc,) and rising investments in this particular sector are expected to expand the market even further.
Decentralization trends are also expected to accelerate the lending and insurance markets. Defi, or decentralized finance, allows for peer-to-peer lending and eliminates the need for traditional banks for loans and insurance requirements. Peer lending has soared in popularity in recent years, and gives private investors considerable room for opportunity as the demand is already within the private markets.
Energy transition
One of the largest opportunities for private investors is the boom of energy systems transformations. Countries throughout the world have pledged and taken actions towards zero net emissions, and mainstream companies have adopted ESG protocols that require tangible calls to action in the name of environmental efficiency.
The world has operated primarily with fossil fuels since the dawn of the first machines, but there is a seismic shift now happening towards renewables. While most reasonably expected this change would come one day, investors can potentially take advantage that this evolution is happening right before their eyes.
According to experts, in order to reach global net zero targets, annual investments into clean energy markets must triple by 2030. More than $3 trillion Is needed to fund innovative solutions and then execute deliverables like: renewable energy, battery optimizations, green industrial capacity machines and carbon removal technologies.
The demand for EV technology has already soared with the adoption of mass-produced electric vehicles of various price levels. This demand will require significant investment across the entire battery supply chain in order to sustain demand. This will include battery storage, but also disposal and recycling technologies and resource recoveries.
Private market investors will find significant opportunity in the mitigation of climate change and experiencing the shift to renewable energy in real-time. These technologies will define the future of both business and living, and in many instances lack the funding needed to bring them to enterprise level.
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