Private tech investments continued to generate solid growth heading into 2018.
In fourth quarter of 2017, the SharesPost Private Growth Index, which tracks valuations for 87 private growth firms, increased 5.2 percent to 118.48 from 112.63 from the previous quarter. By comparison, the S&P 500 rose 6.1 percent and the Dow Jones U.S. Technology Index jumped 8.5 percent during the same period.
For the full 2017, the SharesPost index rose 18.5 percent, lagging behind both the S&P 500 (19.4 percent) and the Dow Jones U.S. Technology Index (35.4 percent).
Preliminary Q1 data suggests the SharesPost index continues to underperform the bullish public markets. The Q1 2018 Index is due out in early July.
However, from a longer term perspective, private growth firms significantly outpaced the broader indexes. From 2015 to 2017, the SharesPost index increased approximately 102.9 percent; the S&P 500 rose 29.9 percent and the Dow Jones index increased 56.3 percent.
Since the last quarter of 2016, the Private Tech Growth index steadily grew at roughly 5 percent. Although private asset growth has been slower compared to the public indexes, we believe the recent spurt of IPOs in 2018 and the favorable response by public investors bodes well for private tech.
The key events affecting the Index performance during the fourth quarter of 2017 were:
(+) Upside drivers: Primary funding rounds during this period included SpaceX (+111 percent), Affirm (+94 percent), Carbon (+54 percent), Anaplan (+37 percent) and Slack (+35 percent). On average, the valuations of these companies increased by 66 percent. There weren’t any notable acquisitions.
(-) Downside drivers: MongoDB’s down-round IPO and its subsequent weak stock performance, a down-round for The Honest Company (-51 percent) and the exit of Lithium Technologies (Vista Equity Partners acquired it) contributed towards a weaker index performance. Mutual funds also modestly downgraded the valuations of mega-cap private growth companies such as Uber and Palantir.
Over the past 3 years, the Private Tech Growth Index has more than doubled the number of companies in its index. The cumulative valuation of these companies has almost doubled from $171 billion in 2015 to over $300 billion by end of 2017. IT added 33 new companies to the index in 2017 alone, reconfirming the growth of companies in this asset class.
Amongst the index companies, there have been a total of 13 exits in 2017, either via an IPO or M&A, averaging at about 1 per month. Favorable market conditions and the large amount of dry powder still available to investors are prompting companies to stay private longer.
|Bill.com||Famer’s Business Network||Planet Labs|
|Casper Sleep||Ginkgo Bioworks|
|Clover Health||Human Longevity||Rubrik|
|Databricks||Moda Operandi||Via (Carpooling)|
|Desktop Metal||Netskope||Zoom Video Communications|
|Name||Reason for Removal||Date of Event|
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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.
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