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Running with the Bulls: Private Market Sentiment Update

private marketsprivate market sentimentiposcryptosbitcoinspotify ipo
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Asa Lieberman   June 21, 2018

In a constantly-evolving tech landscape that can move at an exhaustingly tireless pace, the year 2018 has already brought us ever-growing funding rounds, new financial regulatory rulings delineating what is and what is not a security, and a sudden interest in *checks notes* scooters. We've also digested headlines of trade wars and geopolitical turmoil with varying effects on the public market. But how does all of this factor into the psyche of the private market investor?

Source: EquityZen
Past performance is not indicative of future results.  It is not possible to invest directly in an index.

Luckily, there's a great resource to help answer this question: EquityZen's Market Sentiment Index (EZMSI). In this article, we'll take a dive into what the EZMSI actually is, how to read it, and what it tells us about sentiment in our current climate. Though this is just a snapshot, be sure to sign up for our platform to access the live version of the EZMSI and get real-time updates on private market sentiment!

What is the EZMSI and what does it say about the here and now?

The EquityZen Market Sentiment Index is a chart intended to measure and communicate the attitudes of market participants (that is, buyers' and sellers') towards the current state of the private market. It is important to remember that—as with public markets—market sentiment measures are not always based on fundamentals. This tool serves more so as a general barometer of the bearishness or bullishness of participants in the market. The index itself is a relative measure during a given period of time, which in this case is the last two years. In other words, the most bullish point over those 24 months will be indicated by a score of 100.0 and the most bearish point a score of 0.0.

Our most recent calculation was for the month of May 2018, which came in at 75.1, a generally bullish figure. Compare that score to just a year ago and we're at roughly 5x the bullishness of May 2017. In fact, we can see that we've experienced quite a run of bullish fervor beginning at the start of 2017, with absolute zero coming in March 2017, reaching a peak in December 2017, and then cooling ever so slightly throughout 2018. Looking over a trailing two year period allows us to view trends with greater context, providing perspective when assessing overall sentiment, rather than simply focusing on a passing run or scare.

How did we get here?

Bullish attitudes in 2017-2018 should come as no surprise to the engaged investor. Better yet, it shouldn't raise an eyebrow for anyone who has flipped on CNBC, scrolled through the Wall Street Journal, or stumbled into the questionably-entertaining void that is Finance Twitter. Why? Well, the public markets have been absolutely on fire ever since the Great Recession fully bottomed-out in 2009.

Source: Yahoo! Finance
Past performance is not indicative of future results.  It is not possible to invest directly in an index.

The chart above shows the Dow, NASDAQ, and S&P 500 index prices for the last decade. Up and to the right, as they say. The interesting piece here for the private markets is that we can potentially see two forces at work: 1) this historic public market run has been so lucrative for some that they are comfortable increasing their allocation to alternative assets associated with a larger risk appetite (such as pre-IPO, private market tech stocks), or 2) people are aware that bull runs—no matter how strong our pointed appeals to the contrary—cannot extend indefinitely, and so in advance of a market slowing or downturn, investors want to diversify their portfolios in an effort to mitigate the risk that overexposure to the public markets creates. While not a perfect correlation by any means, public market bullishness usually generates overall bullishness towards the activity of investing on the whole.

Any private market factors at work here?

In case you're just waking out of a six-month slumber, 2018 has already been crowned the "return of the IPO." Household names like Spotify, DocuSign, and Dropbox have all hit the public market to mass fanfare, driving the public discourse around private markets and scoring large returns for investors along the way. The fun doesn't stop there: well-known tech players GitHub and Glassdoor, among others, have gone the route of corporate acquisition to achieve an exit. With recent filers in Domo and Bloom Energy (not to mention Adyen's recent eye-popping IPO), 2018 shows no signs of slowing down any time soon. To find out which companies are on our exits radar for the second half of the year, check out our 2018 IPO Outlook here.

Of course, we'd be remiss not to note that companies are simply staying private longer. Particularly with the advent of megafunds like Softbank that can flood large private companies with multi-hundred million dollar funding rounds, more and more pre-IPO private companies are choosing this source as a favorable alternative to opening their operations and books to public scrutiny.

Is that the full picture?

Hmm... can't seem to think of any other relatively new investment phenomenon to have also taken place over the past 8-12 months that sits firmly at the intersection of finance, tech, and investing that might drastically emphasize, exaggerate, or sway market participant attitudes...

Source: TradingView.com
Past performance is not indicative of future results.  It is not possible to invest directly in an index.

Oh, right: crypto happened. We cannot forget nor dismiss the buzziest topic of 2018Q4. For better or worse, cryptocurrencies dominated the daily watercooler chat (and some fintech company chat rooms...), captivating us all by growing 1000%+ in a matter of months in the case of some coins, and roaring forward to a total market cap nearing $1T. Crypto-fever came to a head right around December 2017-January 2018, just the same as our index. Does this mean our EZMSI is a terrific proxy for crypto sentiment as well? No, it does not. Even though the cryptocurrency markets and the EZMSI both peaked around the same time in December 2017, they are tracking sentiment towards different asset classes, and there is no definitive correlation between the two.

However, it is reasonable to acknowledge the emergence of cryptocurrencies as a new asset class—an undeniably speculative, yet lucrative one at that. This may have been a signal to public market investors that they should diversify into other, non-traditional asset classes as well, forcing them to look outside of standard stocks and bonds. The overall idea that an international phenomenon such as crypto, something that is so wholly steeped in investing, technological disruption, and ideas of the "future," can shine a light on new investment alternatives is something that must be considered when looking at macro forces impacting private market sentiment.

Curious to learn more about our Market Sentiment Index or various other fun dives into the private markets? Check out our Blog and Knowledge Center for invaluable resources on these topics!


Running for the Exits: The Great Unicorn Stampede of 2018

private markets2018 iposventure iposIPOspotify ipo
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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.


EquityZen's 2018 IPO Outlook — Q2 Update

private markets2018 iposventure iposipolyft
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Catherine Klinchuch   May 10, 2018

At the beginning of this year, 2018, our Research team put together a 2018 IPO Outlook report that outlined the private companies most likely to go public throughout the course of the year. With a third of the year in the books, 2018 has already been crowned the champion of the IPO, singlehandedly bringing the IPO market "back." Here, our Research team provides an update.

Our Q2 2018 IPO Update includes fresh observations and predictions to supplement our previously-published 2018 IPO Outlook. Here, we take a look at the IPO environment YTD as well as which of our prior predictions worked and which did not. We also highlight some changes to our outlook for the balance of the year.

2018 — Off to a Good Start

1Q18 saw a solid uptick in VC-backed IPO activity. Year-to-date, 10 VC-backed companies have filed, up from seven last year. Volume has been lighter in 2018 ($3.0B 2018 YTD vs. $4.5B in the same period 2017); however, the drop is due entirely to SNAP, which alone accounted for $3.4B of last year’s volume. Excluding SNAP, the average IPO has actually been over 85% larger in 2018 vs. the same period last year. If the current pace of activity holds, we could see nearly 30 IPOs in 2018 (shown in shaded green bar at right), which would match the robust levels of 2013/2014.

Source: NASDAQ and EquityZen

What did we get right so far? 

Three companies from our original IPO Outlook went public in Q1, including DocuSign, Dropbox and Zscaler. Additionally, Pluralsight, which was included in our original outlook, has filed for an IPO with an expected pricing date of 5/17/18.

Source: NASDAQ

What did we get wrong? 

Primarily, we were too conservative on our assessment of the overall IPO environment. Stronger SaaS multiples are likely a key factor in the wider-than-expected IPO window YTD, as many VC-backed companies are SaaS providers. Five SaaS companies filed that were not in our original outlook: Zuora, Ceridian, Pivotal, Smartsheet and Carbon Black. Note that our outlook includes only domestic companies; thus, Spotify was not in our prediction list.

Source: Ycharts and EquityZen

What are we changing in this version of the outlook? 

Given the stronger SaaS environment, we are adding three SaaS companies to our prediction list: Domo, Rubrik and CrowdStrike. We are also adding Bloom Energy, GreenSky, Kabbage and Peloton. We are removing Airbnb, AppNexus, Credit Karma and Vice. Airbnb recently parted ways with their Wall Street-savvy CFO and media reports suggest that the company has put its IPO on the backburner for now. Vice and AppNexus will likely wait for smoother industry conditions, in our view. Meanwhile, we believe PE-firm Silver Lake’s recent $500M investment in Credit Karma may suggest an IPO is on hold for now. As a reminder, our IPO predictions are created from a bottom-up analysis. The primary factors that determine inclusion are a sizeable revenue base (generally at least $100M), public company experience in C-suite and past guidance from the company on IPO plans.

Read our comprehensive 2018 IPO Outlook that looks at a wide variety of private companies. Here are a couple of the companies from that report that we're particularly looking at:


Year Founded: 2012
Industry / Description: Logistics / Ride-hailing service
Most Recent Equity Funding: $1.7B (2017)
Total Implied Valuation: $12.15B
Revenue Estimate: >$1B in 2017
Other Notes:  The company reportedly engaged underwriters in October for a potential offering.


Year Founded: 2006
Industry / Description: FinTech / Consumer Lending
Most Recent Equity Funding: $200M (2018)
Total Implied Valuation: $4.5B
Total Revenue: ~$400M annually
Other Notes: The company has reportedly filed confidentially


Year Founded: 2009
Industry / Description: Enterprise software / Website security and performance optimization solutions
Most Recent Equity Funding: $110M Series D (2015)
Total Implied Valuation: $3.1B
Revenue Estimate: $100M+
Other Notes:  The company hired former Symantec (SYMC) CFO Thomas Seifert in June 2017. Bloomberg reports suggest that CEO Matthew Prince is aiming for a public offering by mid-2018.