Blog Article | Rohit Kulkarni
Posted: October 10, 2017

An Inflection Point in Q2 For Private Growth Companies?

SharesPost Private Growth Index Trends Above S&P 500 & DJUSTC - A First in Past Seven Quarters

Are private tech growth shares poised to surge ahead? It may be too early to make that call, but during Q2:17, the SharesPost Private Growth Index increased from 102.05 as of March 31, 2017 to 107.34 as of June 30, 2017. That meaningful increase implies a 5.2% rise in valuation of private growth companies included in the Index. This gain compares to 2.6% increase in S&P 500 and 3.4% increase in the Dow Jones U.S. Technology Index. However, preliminary data from July and August indicates a flattish trend in the Index. The Index has lagged in performance in Q3 through August versus the continued bull-market rally in the public markets.

On a YTD basis, through June 30, 2017, the Index implies an increase of 7.3% in the valuation levels of private growth companies, trailing 8.2% increase in S&P 500 and 16.3% increase in the Dow Jones U.S. Technology Index.

However, on a cumulative basis, the Index increased approximately 83.9% from Jan. 1, 2015 through June 30, 2017. This compares to an increase of 17.7% for the S&P 500 and an increase of 34.2% for the Dow Jones U.S. Technology Index.

We launched the SharesPost U.S. Private Growth Index in July as part of SharesPost’s larger mission to provide liquidity to the asset category through a combination of trading, asset management, research, and data. What we found supported what many in the venture-backed ecosystem have been saying for a while — there is clearly opportunity for investors with longer-term investment horizons.

SharesPost Private Growth Index: 1/1/2017 - 6/30/2017
SharesPost Private Growth Index: January 1, 2017, thru June 30, 2017
SharesPost Private Growth Index: 1/1/2015 - 6/30/2017
SharesPost Private Growth Index: January 1, 2015, thru June 30, 2017
A Buying Opportunity?

If we zoom in to the most recent seven quarters, we notice that growth rates in the valuation levels of private growth companies have lagged behind their public market counterparts. As we highlighted in July, we believe that the recent underperformance of private growth companies may create an attractive entry point for investors looking toward the end of 2017 and beyond. And, Q2 trends reinforce our conviction. This was the first time in past 21 months that our Private Growth Index has outperformed both public market peer indices, S&P 500 and Dow Jones U.S. Technology Index.

SP Private Growth Index Above Both Public Indices in Q2:2017
SP Private Growth Index Above Both Public Indices in Q2:2017

Key events affecting the Index performance during the second quarter of 2017 include:

(+) Upside drivers: Primary funding rounds announced during Q2 include Domo (+225%), Houzz (70%), WeWork (+30%), CrowdStrike (+43%), and Fuze (+72%). On average, the valuations of these companies increased by 88% as a result of primary funding rounds.

(-) Downside drivers: Down-round IPOs and subsequent weak post-IPO performance of Blue Apron and Cloudera contributed to downward pressure on Index performance. In addition, during Q2, we noticed mutual funds marked down holdings in Uber and Honest Company. Finally, the bankruptcy filing by Sungevity also affected Index performance over the past 90 days. During Q2, there were no private funding down-rounds reported by the companies in the Index.

Preliminary Q3 trends indicate flattish performance in the Index, lagging public markets

For YTD through August 31, 2017, our preliminary data gathering indicates that the Index has increased 7.7% versus 10.4% increase in the S&P 500 and a 24.4% increase in the Dow Jones U.S. Technology Index. In other words, the Index has lagged in performance in Q3 through August versus the continued bull-market rally in the public markets. Key contributors to the performance so far include 23andMe primary funding round and Tintri down-round IPO.



PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES

This blog post is being published by SharesPost Financial Corporation, member FINRA/SIPC. 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. SP Investments Management, LLC is the investment manager of the SharesPost 100 Fund, a Registered Investment Company, and other funds. These entities and funds (hereafter “SharesPost”) does, seeks to do business with and owns the companies covered in this research report. Consequently, investors should be aware that SharesPost has a conflict of interest that could affect the objectivity of this report.

None of the information contained in this blog post 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 does it 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 advisability 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.

Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that such company has endorsed, supports or otherwise participates with SharesPost. Company “thesis” are the opinions of SharesPost and are not recommendations to buy, sell or hold any security of such company.

SharesPost Private Growth Index: January 1, 2017, thru June 30, 2017
SharesPost Private Growth Index: January 1, 2015, thru June 30, 2017
SP Private Growth Index Above Both Public Indices in Q2:2017
Rohit Kulkarni
Article Author

Rohit Kulkarni

Rohit is the Managing Director, Private Investment Research for SharesPost Financial Corp. Prior to joining SharesPost, Rohit was a Vice President, Senior Analyst at RBC Capital Markets.
SharesPost Private Growth Index

PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES

This blog post is being published by SharesPost Financial Corporation, member FINRA/SIPC. 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. SP Investments Management, LLC is the investment manager of the SharesPost 100 Fund, a Registered Investment Company, and other funds. These entities and funds (hereafter “SharesPost”) does, seeks to do business with and owns the companies covered in this research report. Consequently, investors should be aware that SharesPost has a conflict of interest that could affect the objectivity of this report.

None of the information contained in this blog post 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 does it 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 advisability 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.

Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that such company has endorsed, supports or otherwise participates with SharesPost. Company “thesis” are the opinions of SharesPost and are not recommendations to buy, sell or hold any security of such company.

Important Notice

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