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.
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.
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.
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