January 3, 2018 | Blog

Private Tech Growth Companies Outperform S&P 500 in Q3:17

SharesPost Private Growth Index Rises 4.9 Percent from Q2

The good times keep rolling for private growth tech companies.

In the third quarter of 2017, the SharesPost Private Growth Index increased from 107.34 (as of June 30) to 112.63 (as of Sept. 30). The increase represents a 4.9 percent rise in valuations for the 87 private growth companies in the Index, compared to a 4.0 percent increase in the S&P 500 and a 7.4 percent increase in the Dow Jones U.S. Technology Index.

On a YTD basis through September 30, 2017, the Index valuation increased by 12.6 percent. This increase is similar to the 12.5 percent increase in the S&P 500. However, the Index trailed the 24.8 percent increase in the Dow Jones U.S. Technology Index.

On a cumulative basis, the Index increased approximately 92.9 percent from Jan. 1, 2015 through Sept. 30, 2017. This rise compares to an increase of 22.4 percent for the S&P 500 and an increase of 44.1 percent for the Dow Jones U.S. Technology Index.

While the Index’s Q3 performance was strong, preliminary Q4 data indicate that the Index has lagged behind the performance of public market equities, which benefited from the continuing bull markets. The Q4 Index is due out in early April 2018.

We launched the SharesPost U.S. Private Growth Index in July 2017 as part of SharesPost’s larger mission to provide liquidity to the asset category through a combination of trading, asset management, research, and data.

SharesPost Private Growth Index: 1/1/2017–9/30/2017
SharesPost Private Growth Index: 1/1/2017–9/30/2017
Note: Chart includes preliminary data for SharesPost Private Growth Index starting at 10/1/2017.
SharesPost Private Growth Index: 1/1/2015-9/30/2017
SharesPost Private Growth Index: 1/1/2015-9/30/2017
Note: Chart includes preliminary data for SharesPost Private Growth Index starting at 10/1/2017.
The SharesPost Private Growth Index has outperformed the S&P 500 in Q2:17 and Q3:17

If we zoom in to the most recent nine quarters, we see that growth rates in the valuation levels of private growth companies have trailed behind their public market counterparts. We believe the recent underperformance of private growth companies creates an attractive entry point for investors in 2018 and beyond. Additionally, if we look at the two most recent quarters, the Index has outperformed the S&P 500.

SharesPost Private Growth Index by Quarter, From Q3:15 Through Q3:17
SharesPost Private Growth Index by Quarter, From Q3:15 Through Q3:17

The key events that affected Index performance during the third quarter of 2017 included:

(+) Upside drivers: Primary funding rounds announced during Q3 included Auris Surgical Robotics (+107%), Betterment (+55%), Nextdoor (+44%), and Space Exploration Technologies (+31%). On average, the valuations of these companies increased by 59 percent as a result of primary funding rounds. During Q3, there weren’t any notable acquisitions of the companies included in the Index.

(–) Downside drivers: Down-round IPOs and the subsequent weak post-IPO performance of Snap, Tintri, and Blue Apron contributed to downward pressure on the Index’s performance. The acquisition of Lithium Technologies also affected Index performance over the past 90 days. During Q3, there were no private funding down-rounds reported by the companies in the Index. We also noted modest downward revisions of mutual fund valuation marks for mega-cap private growth companies such as Uber.

Preliminary Q4 trends indicate flattish performance in the Index, lagging public markets

For YTD through Nov. 30, 2017, our preliminary data indicate that the Index has increased 14.4 percent compared to an 18.3 percent increase in the S&P 500 and a 35.5 percent increase in the Dow Jones U.S. Technology Index. In other words, the Index has lagged in performance in Q4 through November when compared to the continued bull-market rally in the public markets. Key contributors to performance so far include CrowdStrike’s primary funding round, MongoDB’s successful IPO, and Blue Apron’s weak post-IPO performance.

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CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.

Alejandro Ortiz

Alejandro Ortiz

Alejandro is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Valuation Analyst at Duff & Phelps with a focus on TMT industries.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.