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Nat Disston June 14, 2018
We're not yet halfway through 2018 and the year is already being hailed as the return of the IPO. To that end, there were already twice as many IPOs through April 2018 as there were all of 2017. Some have even gone as far as to say the IPO is "back" (where it went is a topic for another day). Among those firms that experienced exit events were household unicorns such as Spotify, Dropbox, and DocuSign. Those familiar with EquityZen's mission know we are proud to say that over the course of the past five years we have conducted 4000+ transactions in over 100+ companies. Now, with some of those transacted firms exiting, we wanted to discuss what these events mean for EquityZen, our investors, and our overall thesis of allocating investment funds for the private markets.
Before we dive into these exits in a bit more detail, please keep in mind that not all private securities investments will result in an IPO or an acquisition and not all IPOs or acquisitions will lead to positive investment returns. Private securities investments are speculative, illiquid, and carry a high degree of risk, including loss of principal.
With that said, 2018 has been a robust year for IPOs; excluding SNAP, the average IPO has been over 85% larger in 2018 vs. the same period last year. While this looks like a seemingly boon time for tech companies, we have also seen less-than-glamorous exits via fire-sales or flops post-IPO (who could forget Blue Apron's IPO tailspin?). In the last 12 months, EquityZen has had 11 portfolio companies exit. Let's take a look at how those investments have performed for us and our investors.
First and foremost, the basics. When looking at individual investment returns it is important to remember one of the tenets of Modern Portfolio Theory: diversification. Any individual investment can have an outsized return or loss, but looking across the entire asset class provides a good lens into the strength of the asset class and its value in your portfolio mix. Diversification is one of the reasons EquityZen was founded: to provide private company shareholders and investors a way to diversify their holdings and investments. No longer does an employee at a private tech company need to keep 90% of their net worth tied to an illiquid stock. On the other hand, investors can access a new alternative asset class typically unattainable to individual investors and further diversify their portfolio.
Our asset class is late-stage private technology companies, otherwise known as "pre-IPO." This means that the majority of investment opportunities on our platform are companies that have received institutional financing from late-stage or growth funds and that they typically have an investment horizon of 2-5 years. EquityZen was founded almost exactly 5 years ago. Couple that with a wide IPO window these days and we're lucky to have seen a flurry of exits in the past 12 months. Spoiler alert: not all of these exits have been blockbuster hits. On the bright side, on average our investors have seen very positive returns over the past 12 months, continuing to prove that this is a viable asset class worthy of allocation in your portfolio.
In the past year, EquityZen has seen 11 portfolio companies exit: 8 IPOs and 3 acquisitions. As shown in the below graphic, three of these companies have underperformed for us and our investors. The other eight have generally performed well post-IPO or through their acquisition.
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