Blog Article | Rohit Kulkarni
Posted: July 4, 2017

New SharesPost Private Growth Index Highlights Opportunity For Growth Investors

Strong 2015 Followed by a Mild 2016 Create an Attractive Entry Point in 2017

How have investments in late-stage private growth companies performed compared to publicly traded stocks? Can investors generate growth equity returns in the private market? If so, what does the performance of the private growth asset class over the last couple of years suggest about future returns?

At SharesPost, we set out to answer these questions and so developed the first, comprehensive yardstick for the performance of the asset class - The SharesPost U.S. Private Growth Index. The Index is 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. On a cumulative basis, the Index increased approximately 74.8% from Jan. 1, 2015 through March 31, 2017. This compares to an increase of 14.8% for the S&P 500 and an increase of 29.8% for the Dow Jones U.S. Technology Index.

SharesPost Private Growth Index: January 1, 2015, thru March 31, 2017
SharesPost Private Growth Index: January 1, 2015, thru March 31, 2017
Source: SharesPost Research; Google Finance

The Index starts at a value of 100 as of January 1, 2017. To provide a historical perspective, we created a hypothetical Index for 2015 and 2016 by applying the same methodology and eligibility criteria. In the charts below, we illustrate the summary. The number of private tech growth companies that qualify to be included in the Index has increased on a year-over-year basis. Effectively, the total market capitalization of the companies in the Index has also increased. The key takeaway is that, on a cumulative basis, our hypothetical Index would have increased roughly 74.8 percent from January 1, 2015, through March 31, 2017. This increase is comparable to an increase of 14.8 percent for the S&P 500 and 29.8 percent for the Dow Jones U.S. Technology Index. If we zoom in to the most recent five quarters, we notice that growth rates in the valuation levels of private growth companies have lagged behind their public market counterparts. Viewed another way, the recent modest performance of private growth companies may create an attractive entry point for investors looking toward the end of 2017 and beyond.

Macro trends in VC ecosystem point towards more investment opportunities

An objective, independent measure of the market is critical because the private technology growth sector has experienced a remarkable paradigm shift since the Great Recession of 2007 and 2008. In our recent reports, we have highlighted key trends and factors that have led to the proliferation of “unicorns” and the emergence of the new “private tech growth” asset category. In particular, as we note in the two charts below, the supply and demand curves for private growth capital have changed significantly, leading to a record-high level of funding and fundraising activity.

These game-changing trends, coupled with the recent uptick in billion-dollar acquisitions and IPOs, provide greater conviction that we are in the middle of a longer-term, fundamental change in the way growth capital is raised, managed, and harvested. We believe there is a growing need for an objective, quantitative indicator of the health of private tech growth companies in the U.S. For more information about our thoughts on VC funding and fundraising trends, refer to our white papers entitled “Birth of an Asset Class” and “Rise of Unicorn Funds.”

VC Funding Trends: $250B+ Invested in U.S. Private Growth Companies Since 2009
VC Funding Trends: $250B+ Invested in U.S. Private Growth Companies Since 2009
Source: NVCA, PitchBook, SharesPost Research; TTM = trailing twelve months’ data calculated as of March 31, 2017
VC Fundraising Trends: $250B+ in Funds Raised for Private Technology Growth Asset Class Since 2009
VC Fundraising Trends: $250B+ in Funds Raised for Private Technology Growth Asset Class Since 2009
Source: NVCA, PitchBook, SharesPost Research; TTM = trailing twelve months’ data calculated as of March 31, 2017

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.

Rohit Kulkarni
Article Author

Rohit Kulkarni

Rohit is the Managing Director, Private Investment Research for SharesPost Research LLC. 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.

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