As stocks recover, private investors aren’t buying the hype

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we need to talk about what we’re hearing from the private markets and the public markets, and how different their messages seem to be.

The public markets through yesterday were on the bounce, rising sharply from recent lows, driven by negative news concerning COVID-19 and its ensuing economic damage. As TechCrunch noted yesterday, major American indices had seen their value sharply recover from lows recorded earlier in the year. This was odd, as the news from COVID-19 is far from good — America is still the country with the highest rate of new, confirmed infections and related deaths by some margin — and the economic damage stemming from the nation’s belated efforts to stem the pandemic at home piles up.

You can easily read optimism in the stock market: that the COVID-19 infection footprint at home isn’t as bad as some models indicated, that social distancing is working, and that the economy will quickly rebound from this bother. Ask around the private markets, however, and you’ll hear a very different narrative.

Yesterday while kicking over the business-focused modern software market (enterprise SaaS, if you prefer) with Shasta Ventures‘ Jason Pressman, we discussed the state of affairs for private companies that he’s seeing from his perch inside the startup machine. Taking his notes into account, along with those of other investors that we’ve spoken to recently, it’s hard to understand the level of optimism that public markets are signaling.

Not that Pressman is a pessimist, it would be difficult to be a net-gloomy venture capitalist on the whole, given the risk profile of the investments they make. But some VCs who have invested through prior downturns are comfortable being candid about what they are seeing from private companies, those inside their portfolios and out.

This morning let’s explore the public-private optimism gap for the second time. The last time we undertook this particular theme, public investors were being pessimists and private investors appeared unseasonably bullish. It’s unlikely that there is room for both views to be correct.

Smiles, frowns