Private Tech Growth as an Asset Class Keeps On Rolling
October 23, 2018

Private Tech Growth as an Asset Class Keeps On Rolling

In 2016, we declared the emergence of late stage, VC-backed companies, powered by “private IPOs,” mega rounds of $100 million or more, as a new asset class. At the time, however, critics warned of a bubble, that valuations were too high. Private market trends over the past 24 months confirm that private IPOs are not only the new norm but may be replacing traditional public IPOs.

Nearly $350 billion invested in U.S. private tech companies since 2009

With a 23 percent CAGR (Compound Annual Growth Rate) over nearly a decade, the pace of investment in private tech companies has remained consistently strong. Investors have poured $350 billion into these companies, increasing from $13 billion in 2009 to $72 billion over the last 12 months, according to our analysis of Pitchbook data. 2018 could prove to be record-setting, with $46 billion already invested in the first half of the year. That’s a whopping $16 billion increase over the previous record set in the first half of 2017.

Since 2014, majority of the growth in VC funding has come via private IPOs

We estimate that late-stage mega deals represent nearly 70 percent of incremental VC dollars invested since 2014. Private tech companies raised roughly $4 billion via private IPOs in 2010. That number jumped more than 7 times to $30 billion in 2017. The trends we are seeing so far in 2018 hint at another record year for late-stage mega deals.

Private IPOs have raised three times more capital than public tech IPOs

The 160 or so VC-backed tech companies that went public over the past 4 years raised a combined $34 billion, according to Pitchbook and University of Florida business professor Jay Ritter. By comparison, private firms raised $110 billion in total capital from private IPOs during this period, roughly 3 times the amount of capital raised via traditional IPOs, because of mega-funding rounds. Are we seeing a new Moore’s law with regard to venture funding?

A zero-sum game is developing among public and private IPOs

We are in the midst of the longest, least volatile and most sustained tech rally since the dawn of the personal computing. NASDAQ is up more than 400 percent from 2009. But despite this bull market, tech IPOs have steadily declined from about 50 in 2014 to about 30 per year. At the same time, the number of private IPOs has increased from about 70 in 2014 to over 130 (annualized) in 2018. We believe a zero-sum game has developed. As companies stay private longer, they are effectively shifting value creation from the public markets to private markets.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

This article 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 prudence 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.

Securities referenced in this article may be 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, involving a high degree of risk, and investors should 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 investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or 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, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2020. All rights reserved.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

This article 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 prudence 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.

Securities referenced in this article may be 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, involving a high degree of risk, and investors should 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 investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or 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, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2020. All rights reserved.