> In the private market, it's usually impossible to short-sell
Not just that, but in the private markets, it's usually impossible to sell at all unless the company decides to let you (ie, unless it's beneficial to the company, or at least better for the company than the alternatives).
This fact alone strongly implies that prices will always inherently have an upward bias; it's actually quite difficult to conclude otherwise.
> This fact alone strongly implies that prices will always inherently have an upward bias; it's actually quite difficult to conclude otherwise.
Eventually it can get corrected, though, right? But as a sharp dislocation when fundamental reality percolates through as a wave of down valuations and shutterings, I suppose.
On this view, you'd want to short-sell the whole VC market if you could. This isn't possible directly, but maybe there's an indirect way? I'm reminded of how people sometimes place directional bets on "the hedge fund industry" as a whole by taking long or short positions on a basket of publicly traded companies that provide back-office and accounting services to a large percentage of hedge funds (e.g., NASDAQ:ADVS, NASDAQ:SSNC), and whose fortunes therefore rise and fall with the hedge fund industry's -- maybe one could construct some indirect play like that for VCs?
A decline in stock price of a publicly traded company is an everyday trivial occurrence.
A decline in stock price of a private company implies a down round, which triggers all sorts of ratchets and provisions, usually binds the company to all sorts of new limiting ratchets and provisions, and is generally perceived as a severely negative event for investors, management and employees.
> Can you expand on this? Do you mean the incentive is to push for a constantly higher price because you have to hold on to it?
Thinking at a macroscopic level, in an open market, the price of a security isn't just "what people are willing to pay for it" (contra great-GP), but rather the balance of what people are willing to sell it for and what people are willing to buy it for. When you prevent one half of that price-discovering mechanism from occurring (selling), you can expect an imbalance -- at least for the market as a whole... for specific, individual companies this may be a second-order effect.
Not just that, but in the private markets, it's usually impossible to sell at all unless the company decides to let you (ie, unless it's beneficial to the company, or at least better for the company than the alternatives).
This fact alone strongly implies that prices will always inherently have an upward bias; it's actually quite difficult to conclude otherwise.