Report

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.

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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.

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Contact

For information on research and analysis

Rohit Kulkarni
Managing Director
Private Investment Research Group
(650) 300-5128Email

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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 and SharesPost Financial Corporation are wholly owned subsidiaries of SharesPost, Inc.

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.

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. 2018. All rights reserved.

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