Private equity deals, financing rounds, and eventually becoming a public company can be a rollercoaster ride. There may be ups, downs and plateaus, but the ultimate goal for everyone involved is to invest and use them to build a thriving business. Sometimes it happens, sometimes not.
That’s the nature of business, and that’s why success stories ultimately offer a thing or two for executives and investors. Because if every startup is successful, it is not an achievement and, in turn, the opportunity to make money will be limited. So, despite the risks, when things go according to plan, the rewards outweigh the risks.
Go long and go short
Traders know this very well. Taking a long position in a new company that has just gone public can be a risk, especially when it comes to market with a lot of hype. Uber is a good example of this. When the ride-sharing company launched its IPO in May 2019, expectations were high. However, the opening price of $45 proved overpriced. With a sharp decline of $26 over the course of six months and a low of $21, Uber shares are struggling to return to their pre-sale valuations.
This is a great example of how private finance can help build a business. But it’s also an example that public support may not always match initial expectations. The financial sector is built for these fluctuations. Thanks to products known as contracts for difference (CFDs), traders do not have to take long positions. Instead, they can short a company and make a profit if the stock price falls. For example, if a Vietnamese trader sees this online “วิธี MT4”, he can learn the nuances of CFDs and how to trade them via MT4 on his mobile.
Traders and investors need to be flexible
The main thing you will learn is that CFDs allow you to take long or short positions on stocks. This is useful given what we’ve learned about the nature of IPOs and the natural course of business. This information is useful for traders, but what does it say to investors or people who want to learn about finance in all its forms? It tells us that things can flow in both positive and negative directions. It’s a natural part of doing business and something you shouldn’t be afraid of. Keep that in mind the next time you check for the latest list of private financing announcements and IPOs.
In fact, the willingness to accept a company’s financial volatility becomes even more important in times of economic uncertainty. When inflation starts to rise and a recession begins, there is often a lot of selling activity. The latest investment news is a prime example of this. In August 2022, the Financial Times reported that investors in private equity and venture capital funds sold $33 billion worth of shares in the first half of the year. As reported, this selloff is up from $19 billion over the same period in 2020 and follows a decade of “increasing allocation to private markets.”
Historical grant is not an indicator of future success
Revealing it doesn’t mean it’s right or wrong to sell to investors. The point here is that markets fluctuate. One minute everyone is investing in tech startups because the economy is strong, the next they are exiting the market. One minute public companies are trading high, the next they are struggling to maintain a stable share price while the industry collapses. You cannot control these fluctuations, just as you cannot control whether an investment or trade yields a profit.
However, what you can do is become aware of how companies work and how financial markets fluctuate. So let’s say you just read that Shopic raised $35 million in Series B funding. This is a positive sign that the company is doing well. However, what it doesn’t do is a sign that it will always be successful. It could be, but you cannot rely on past funding as a guide to future prospects. It can be a useful indicator, but only when used in conjunction with other metrics. This is an important lesson for anyone investing or interested in financing to learn.