1st Annual Private Tech Investor Survey
December 22, 2016

1st Annual Private Tech Investor Survey

Highlights From SharesPost’s 1st Annual Private Tech Investor Survey

We are pleased to announce the results of SharesPost’s first private tech investor sentiment survey. Over 600 accredited individual and institutional tech investors let us know their expectations for the new year. Survey participants represented a wide range of private and public market investment styles. Although such surveys admittedly have a degree of sampling bias, the results were surprisingly consistent. In short, investors of all types are predominantly bullish about the prospects for tech companies in 2017.

Key highlights include:

#1. Bullish prospects for Private Tech company valuations

49% of investors surveyed think private company valuations would increase in 2017 (vs. 28% of investors expect valuations to decrease). This clearly implies a bullish sentiment among investors towards private tech companies, particularly given the downward valuation correction we witnessed through much of 2016. We note that the bullbear gap for private tech companies is a bit narrower versus the corresponding gap for public market performance expectations. Slicing the survey data by investor category, we observed that high net worth investors were marginally more bullish about the private market’s upside in 2017 than institutional investors.

#2. There is a greater enthusiasm for Small/Mid-Cap Tech companies

We asked survey respondents their preference between Public Large Cap Tech, Private Large Cap Tech, Public Small/Mid-Cap Tech, Private Small/Mid-Cap Tech, and Early/Seed investments. 29% of the surveyed investors chose Private Small/Mid-Cap Tech followed by 25% of investors believe that Public Small/Mid-Cap Tech companies would provide best returns over the next 12 months. Interestingly, we observed a greater bias among institutional investors towards the Small/Mid-Cap asset classes. In other words, 38% of surveyed VC/PE investors prefer SMID private tech companies and 43% of public equity investors prefer SMID public tech companies.

#3. Investors expect roughly 10 Unicorns to go public in next 18 months, in-line with historical levels

65% of surveyed investors think that 10 or fewer Unicorns would go public over the next 18 months, implying a runrate of less than two $1 billion IPOs per quarter. We observed that public equity-focused institutional investors are marginally more optimistic about the IPO prospects of Unicorns as compared to their VC/PE-focused counterparts. On a weighted average basis, public equity investors believe that roughly 11 Unicorns would go public over the next 18 months whereas VC/PE folks estimate 9 such IPOs. Recall that in our earlier report, “Zero to One Billion”, we illustrated a trendline of “real” Unicorns i.e. $1B+ IPOs or M&As of VC-backed tech companies. There have been 6-8 $1B+ IPOs of VC-backed tech companies every year since 2009. This annual run rate has largely stayed within this range since the Great Recession, with few peaks (2013 and 2014) and valleys (2016). In short, investors expect a “reversion to mean” IPO activity over the next 12-18 months, implying an uptick in activity observed in 2016.

#4. Sectors with highest growth potential are Big Data, Security, VR/AR, and FinTech

We asked participants, “regardless of investment time horizons, where do you see greatest growth opportunity in the future?” We presented 15 options (as illustrated in exhibit 13), and asked investors for their top three choices. Regardless of investor groups or cohorts, we noticed Big Data/Analytics, Security (Software), VR/AR, FinTech, and Wearables (IoT) as the most selected choices whereas Gaming, Ad-Tech, and Clean-Tech as the least selected choices among all investor groups. We were surprised that almost all cohorts of investors, accredited individual vs. institutional or public equity vs. VC/PE investors, seem to generally prefer the long-term growth prospects for Enterprise Software companies above Consumer Mobile or Web Internet companies, particularly given 3 out of 5 most valuable public companies today are in the latter group (GOOGL, AMZN, FB) versus just one in the first group (MSFT).

#5. Generally positive bias towards investing in private tech companies via secondary shares

About 37% of all surveyed investors think that investing in late-stage, private tech growth companies via secondary shares is an attractive investment strategy. This compares to 23% of surveyed respondents who indicated that secondary shares do not present an attractive investment opportunity. Both private equity and accredited individual investors think positively about investing in this asset class. But, a marginally higher proportion of public equity-focused institutional investors are negatively biased towards this asset class. 35% of public equity investors think that this asset class is not an attractive investment opportunity. This proportion is marginally higher than the 33% of public equity investors who think that secondary share investing is an attractive investment.

#6. Investors expect public markets to continue to rally in 2017

57% of investors surveyed believe the S&P 500 would rise by 5% or more over the next 12 months. On the other hand, 17% of survey respondents believe the S&P 500 would decrease by 5% or more during 2017. Institutional investors are marginally more bullish about public markets than individual investors. 64% of surveyed institutional investors are bullish, whereas 53% of accredited individual investors expect public markets to rise 5% or more. This perspective is consistent with the most recent investor sentiment study conducted by American Association of Individual Investors (AAII) from December which reported that 43% of respondents felt bullish versus the 28% feeling bearish.

Survey Methodology

The SharesPost Investor Survey was created to obtain feedback from high net worth accredited individual and institutional investors on market sentiment and sector-specific expectations for 2017. The online survey was conducted from November 21 to December 15, 2016. We invited accredited individual investors and institutional clients of SharesPost to participate. The anonymity of all survey responses has been maintained and online IP tracking disabled. We received more than 600 completed survey responses. Based on a sample population of between 1,000,000 to 2,000,000 members, we estimate the margin of error for the survey was below ±5% for a 95% confidence interval.

As a first question, we asked survey respondents to identify themselves as one of the following: Public equity investor, VC or Private equity investor, Working inside a company, and Other. If survey respondents chose either “working inside a company” or “other”, we categorized them as an accredited individual investor. We illustrate the overall breakdown below. Note that unaccredited investors were not invited to participate.

Exhibit 1: Please identify yourself. My day job is …
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors; Accredited survey respondents who indicated that they work inside a company or run their own business were categorized as “Accredited individual investors”
#1. Bullish prospects for Private Tech company valuations

49% of investors surveyed think private company valuations would increase in 2017 (vs. 28% of investors expect valuations to decrease). While this implies a generally bullish sentiment among investors towards private tech companies, we’d highlight that this bull-bear gap for private tech companies is a bit narrower versus the corresponding gap in the proportion of investors expecting the public markets to rise and fall. Our interpretation? Overall optimism for public markets is more widespread than the optimism for private tech company investing. But, the key point here is that more than 70% of the surveyed investors believe that private tech company valuations would either stay flat or rise over the next 12 months.

In addition, we observed that individual PE investors were marginally more bullish than institutional investors and public equity investors, respectively. For context, 75% of surveyed accredited individuals believe that private tech company valuations would stay flat or rise over the next 12 months. This compares to 70%, 68%, 65% levels for VC/ PE investors, Institutional investors, and Public equity institutional investors, respectively.

Exhibit 2: Over the next 12 months, do you expect valuations of Private Technology Growth companies to go up, down, or remain about the same as in recent couple of quarters?
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 3: Comparable private tech valuation expectations among Institutional & Accredited Individuals
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 4: $MM Capital Raised Per Quarter By Traditional VC & Private Growth Funds
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
#2. There is a greater enthusiasm for Small/Mid-Cap Tech companies

We asked survey respondents specific questions to gauge their preference for specific sectors. We provided five options to chose among: Public Large Cap Tech, Private Large Cap Tech, Public Small/Mid-Cap Tech, Private Small/Mid-Cap Tech, and Early/Seed investments. 29% of the surveyed investors believe that Private Small/Mid-Cap Tech would provide best returns over the next 12 months followed by 25% of investors that believed Public Small/Mid-Cap Tech companies would do so.

Institutional investors have a marginally greater bias towards SMIDs versus accredited individuals. 58% of surveyed institutional investors think that Small/Mid-Cap private or public tech companies would yield the best returns over the next 12 months. This compares to a tad lower proportion of 54% of accredited individuals who indicated either public or private small/mid-cap tech companies as their top choice to invest over the next 12 months.

VC/PE investors prefer Private SMIDs and public equity institutional investors prefer public SMIDs. We observed a greater bias among institutional investors towards Small/Mid-Cap asset classes. 38% of surveyed VC/PE investors prefer SMID private tech companies and 43% of public equity investors prefer SMID public tech companies.

Exhibit 5: Thinking about your investments over the next 12 months, which of the following asset classes do you believe are likely to deliver the best returns?
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 6: Similar asset class preferences across Institutional & Accredited Individuals
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 7: Public equity investors prefer public SMIDs & VC/PE prefer private SMIDs
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
#3. Investors overall expect roughly 10 Unicorns to go public in next 18 months, in-line with historical levels

65% of surveyed investors think that 10 or fewer Unicorns would go public over the next 18 months, implying a runrate of less than two $1 billion IPOs per quarter. We observed that public equity-focused institutional investors are marginally more optimistic about the IPO prospects of Unicorns as compared to their VC/PE-focused counterparts.

Accredited Individuals are more optimistic about Unicorn IPO prospects versus Institutional Investors: 45% of surveyed accredited individuals think that there would be more than 10 Unicorn IPOs over the next 18 months. On the other hand, 33% of their institutional counterparts agree with this level of IPO activity. And, the flip side of these statements is also true. Roughly 67% of surveyed institutional investors believe that there would be 10 or fewer Unicorn IPOs over the next 18 months.

On average, Institutional investors expect 9 to 11 Unicorn IPOs thru 1H:2018: On a weighted average basis, public equity investors believe that roughly 11 Unicorns would go public over the next 18 months whereas VC/PE folks estimate 9 such IPOs. Interestingly, the investors who are closest to these private companies i.e. the VC/PE investors seem to have the least optimistic view on their IPO prospects over this period.

Exhibit 8: How many Unicorn private companies do you expect to go public over the next 18 months?
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 9: Institutional & Individual Investors have comparable Unicorn IPO expectations
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 10: Public equity investors have slightly higher IPO expectations Vs. VC/PE investors
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
#4. Sectors with highest growth potential are Big Data, Security, VR/AR, and FinTech

We asked all survey takers the following question: “regardless of investment time horizons, where do you see greatest growth opportunity in the future?” We presented investors with 15+ options and asked them to choose their top three choices. Regardless of investor groups or cohorts, we noticed Big Data/Analytics, Security (Software), VR/AR, FinTech, and Wearables (IoT) were the most selected choices whereas Gaming, Ad-Tech, and Clean-Tech were the least selected choices among all investor groups. We were surprised that almost all cohorts of investors, accredited individual vs. institutional or public equity vs. VC/PE investors, seem to generally prefer long-term growth opportunity in Enterprise Software companies versus Consumer Mobile or Web Internet companies, particularly given 3 out of 5 most valuable public companies today are in the latter group (GOOGL, AMZN, FB) versus just one in the first group (MSFT).

Exhibit 11: Regardless of investment time horizons, where do you see greatest growth opportunity in the future?
Source: SharesPost Research; N=600 survey respondents; * Consumer Apps; ** Enterprise Software Apps; Survey options also included “Other Enterprise Software Apps”, “Other Mobile or Web Consumer Apps”, and “Other”; We qualified “Infrastructure Apps” to include “Storage, Computing, & Networking”
Exhibit 12: Similar sector preferences for Institutions & Accredited Individuals
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 13: Top Seven sector choices of Institutional & Individual Investors are similar
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
#5. Generally positive bias towards investing in private tech companies via secondary shares

About 37% of all surveyed investors think that investing in late-stage private tech companies via secondary shares is an attractive investment strategy. This compares to 23% of surveyed respondents who indicated that secondary shares do not present an attractive investment opportunity. Both private equity and accredited individual investors think positively about investing in this asset class. But, a marginally higher proportion of public equity-focused institutional investors are negatively biased towards this asset class. 35% of public equity investors think that this asset class is not an attractive investment opportunity. This proportion is marginally higher than the 33% of public equity investors who think that secondary share investing is an attractive investment.

Exhibit 14: How do you view secondary shares of late-stage VC-backed tech companies as an asset class?
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 15: Institutional investors are marginally more positive than Individuals
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 16: VC/PE investors are more bullish than public equity investors
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
#6. Investors expect public markets to continue to rally in 2017

57% of investors surveyed believe the S&P 500 would rise by 5% or more over the next 12 months. On the other hand, 17% of survey respondents believe the S&P 500 would decrease by 5% or more during 2017. For context, prior 5-year market returns have been 2.1% in 2011, 16% in 2012, 32.4% in 2013, 13.7% in 2014, and 1.4% in 2015. Through Dec 15 2016, the S&P 500 is up approximately 10%.

Institutional investors are marginally more bullish about public markets than individual investors. 64% of surveyed institutional investors are bullish whereas 53% of accredited individual investors expect public markets to rise 5% or more. This level of optimism largely ties in the most recent investor sentiment conducted by American Association Of Individual Investors (AAII) that reported which 43% of the surveyed individual investors felt bullish versus 28% feeling bearish in early December.

Public equity investors are marginally more bullish about public markets than VC/PE investors. 69% of surveyed public equity investors are bullish whereas 60% of private equity institutional investors expect public markets to rise 5% or more. On the other hand, roughly 12-13% of public equity investors expect public markets to decline 5% or more during 2017.

Exhibit 17: The S&P 500 is up roughly 8% so far in 2016. Where do you expect the S&P 500 to be in the next 12 months?
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 18: Institutional investors are more bullish than accredited individual investors
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
Exhibit 19: Public equity investors are more optimistic than VC/PE folks about public markets
Source: SharesPost Research; N=600 survey respondents incl. 388 accredited individual investors, 91 public equity & 121 VC/PE investors
PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES

CONFLICTS: This report is being published by SharesPost Research LLC, and 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. SP Investments Management is the investment manager of the SharesPost 100 Fund, a registered investment company, and other funds.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. 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 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” is the opinion of SharesPost and is not a recommendation to buy, sell, or hold any security of such company.

Investors should be aware that the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest in any of the issuers that are discussed in the report at any given point in time. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, investors are cautioned to consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.

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

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER: This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are 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 and involves a high degree of risk. It should only be considered as a long-term investment. You must 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 you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other 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, SharesPost Index, SharesPost Investment Management, SharesPost 100 Fund, and SharesPost 100 List are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright © SharesPost, Inc. 2019. All rights reserved.

PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES

CONFLICTS: This report is being published by SharesPost Research LLC, and 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. SP Investments Management is the investment manager of the SharesPost 100 Fund, a registered investment company, and other funds.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. 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 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” is the opinion of SharesPost and is not a recommendation to buy, sell, or hold any security of such company.

Investors should be aware that the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest in any of the issuers that are discussed in the report at any given point in time. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, investors are cautioned to consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.

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

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER: This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are 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 and involves a high degree of risk. It should only be considered as a long-term investment. You must 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 you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other 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, SharesPost Index, SharesPost Investment Management, SharesPost 100 Fund, and SharesPost 100 List are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright © SharesPost, Inc. 2019. All rights reserved.