There’s a weird thing that’s happening in markets right now, according to venture capitalist Marc Andreessen.
Public companies are being forced to take an extremely short term view of investing while private companies are being given more time than ever to make investments in their business.
“The irony is that it’s the same investors driving that,” Andreessen said in an interview with Fortune reporter Dan Primack at Andreessen Horowitz’s headquarters in front of a room full of Andreessen Horowitz’s investors.
Andreessen said that right now, big institutional investors like Fidelity and T. Rowe Price are pouring money into private companies while telling big public companies to do buybacks and dividends.
Buybacks and dividends on the S&P will top $US1 trillion this year, and Andreessen said that the time frame for a public company to invest has shortened more than he’s ever seen in his life. Andreessen said that p
ublic companies right now aren’t being given an opportunity to invest in new ventures to build their business.
At the same time, the time frame for private companies has elongated, giving private companies the time to experiment, figure out what works, and build value.
“They tell the public company CEO, ‘Give us the money back this quarter,'” said Andreessen. “They tell the private CEO, ‘No problem! Go for ten years!'”
He added, “If there’s a grand unifying theory for how markets operate, I think that’s it.”
This behaviour is driving a lot of what we’re seeing in the private markets in terms of valuation. It’s also what’s leading to a what we’re seeing in the public markets in terms of mergers and acquisitions.
Primack has been warning thatthere’s a crisis in VC-land right now. While there are ~100 private companies valued at over $US1 billion, IPOs, and M&A have slowed considerably. Therefore, there’s a bit of a liquidity problem. VCs aren’t getting real “cash on cash” returns. They’re only getting paper returns.
Andreessen’s theory is that big companies that aren’t led by founders don’t have the leeway with investors to go make $US1 billion+ acquisitions. Weirdly, the investors that are impatient with the big companies are patient with the private companies.
As a result, the investors are pumping money into the private market, inflating valuations, making it even harder for public companies to buy the private companies.
You can listen to Primack talking to Andreessen below.
Disclosure: Marc Andreessen is an investor in Business Insider.