Houlihan Lokey – Growth Investor Survey, 3Q 2023

Houlihan Lokey conducted a survey of 26 top private market growth investors with over $700 billion in assets under management to gain insight into the current private capital market dynamics. Despite challenging conditions, investor sentiment suggests that private market activity has bottomed out and is expected to increase. However, the recovery will be gradual and uneven, creating a "new normal" without a return to the excesses of 2020 and 2021. Investors remain pessimistic about the macroeconomic environment, with two-thirds expecting further deterioration throughout 2023. Elevated interest rates and the ongoing war in Ukraine are seen as persistent headwinds. Despite these concerns, eight in 10 investors expect the initial public offering (IPO) window to reopen significantly by the end of the first half of 2024, following nascent activity in the US and Europe. IPOs are seen as a critical exit strategy for six in 10 investors in the growth capital ecosystem. Private market activity is on the rise, with two-thirds of investors planning to increase their dealmaking volume for the rest of the year compared to the first half of 2023. Most investors also anticipate more companies coming to market. Additionally, two-thirds of investors expect a return to firmer private market conditions in the first half of 2024. Valuations have largely stabilized, and most investors expect to offer valuations consistent with recent trends. While some valuation misalignment with founders persists, it is not perceived as a significant issue by the majority of investors. Investors emphasize the importance of efficiency and profitability, and the focus on these factors is expected to continue beyond 2025. Profitable, earlier-stage opportunities are gaining more attention, while sectors such as SaaS, energy transition, and AI are seen as attractive. However, caution is advised as excitement regarding AI may be excessive in the short term, and the influence of Big Tech in the AI space may be underestimated by scale-ups.