Sharemarket turmoil shakes confidence of private company investors, but clean tech firms still the top target: Survey

Recent volatility on global sharemarkets has shaken the confidence of private company investors, with a survey from Wholesale Investor showing the proportion of investors who think it is a good time to invest has plunged from 95% to just over 61% in the last three months.

However, the survey suggests that private company investors are starting to become less risk adverse, with the proportion of investors keeping more than 60% of their investment portfolio in the safe haven of cash dropping by half from the March quarter to the June quarter.

Wholesale Investor executive director Rueben Buchanan says the volatility and poor performance of the sharemarket since the middle of April has had a big impact on the confidence of private investors.

Of particular concerns for this group has been the poor performance of the IPO market. The survey shows that just over half of all the investors surveyed are interested in investing in pre-IPO companies which offer a clear exit strategy.

“Late last year everyone thought this was going to be the year of the IPO, but it just hasn’t happened,” Buchanan says.

The survey shows that just under a third of respondents are targeting investment returns of 15-25%, although almost 47% say they are looking for returns above 25%.

Buchanan says private investors are now taking an approach similar to that of private equity firms, which also target returns of around 25% and tend to invest in more mature companies that are producing strong profits and revenues.

“Because things are a bit more volatile, some are tending to take lower returns and aim at things that are a bit safer,” he says.

“They are shying away from the really early stage companies that have little revenue and targeting more mature, established businesses.”

This is putting increasing pressure on the ability for start ups and early stage businesses to get funding, particularly as banks and other lenders are pulling back from this sector of the market.

Buchanan admits there are no easy solutions to this, but says early stage companies need to ensure they have well-structured and well-thought-out business plans if they want to have any hope of landing an investor.

The five industries nominated as likely to show the highest growth over the next three months were:

• Clean tech (42.7% of respondents)
• Mining/Mining services (30%)
• Internet/IT (28.2%)
• Property (27.3%)
• Biotech (22.7%)