Weekly Update #137: How Morgan Stanley Values Unicorns

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Hello Investors,
How Morgan Stanley values the unicorns
Fortune's Dan Primack recently reported that Morgan Stanley marked down their investments in Palantir, Dropbox, FlipKart and SurveyMonkey.
Curious on how the big banks mark their pre-IPO tech investments? EquityZen's Bryan Weis did some digging and found some interesting information:
Morgan Stanley uses multiple valuation techniques
More specifically, MS marks their position in tech companies based on:
  • Weighted Average Cost of Capital (range: 16-19%)
  • Perpetual Growth Rate (range: 2.5%-5%)
  • Enterprise Value / Revenue (range: 5.1x - 20.0x)
They discount all their private tech stock holdings
MS discounts each holding by 20% as a "discount for lack of marketability", or DLOM. This is a common input into 409A valuations for pre-IPO tech companies when determining the strike price of options, too.
Valuation multiples of revenue are usually 10x to 18x
What this means is that MS estimates the valuation of their private tech company investments by using an industry-accepted multiple of the company's annual revenue. 


Fortunately, EquityZen has an estimate of shares outstanding for each company. MS also shared its price-per-share, so we can multiply the two to generate Enterprise Value. By dividing Enterprise Value, we can back out the approximate revenue for each company:

Hopefully this analysis sheds some more light on the estimated annual revenues of a handful of pre-IPO tech companies. And while other factors are incredibly important in a company's ability to be profitable (read: Not All Revenue Dollars Are Created Equal from Tom Tunguz at Redpoint Ventures), the revenue multiple serves as a solid benchmark for growing, non-yet-profitable tech companies.
In other news...
EquityZen's Shri Bhashyam discusses the importance of liquidity in a down market.
Fidelity Investments has once again broken out the red pen for many of its privately-held portfolio companies, according to a Fortune analysis of new valuation reports for three of its mutual funds.
Nikhil Trivedi of Shasta Ventures talks about eight exciting trends that he thinks will become increasingly relevant in 2016.
Mark Suster releases the full dataset on what venture capitalists are expecting in 2016's funding ecosystem.
Phil Haslett | Founder + Head of Investments | EquityZen 

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