Private Market Update - June 2023

Beyond primary rounds? New analytics provide private market investors with additional perspective

Key Takeaways
  • Private market largely flat thus far in Q2, according to Forge Private Market Index
  • Bid-ask spread falls to 17% in May and rate of valuation decline slows considerably 1
  • Improvements in macroeconomic metrics may reduce fears of recession

The private market has endured its fair share of shocks to the system over the last eighteen months as inflation, rising interest rates, and geopolitical conflict combined to lower investor risk tolerance and weigh down on the highest-growth segments of the market, including secondary shares of private companies. The collapse of Silicon Valley Bank and the ensuing banking crisis felt like the cherry on top, leading many to believe that another wave of price declines was inevitable and that 2023 was shaping up as a repeat of 2022.

But new analytics from Forge paint a different picture thus far. After government and private entities stepped in to contain the banking fallout, private company performance has been relatively flat. Thus far in Q2, the newly launched Forge Private Market Index is down -3% but shows an upward trend in the overall number of companies with positive quarterly performance. 2 The Forge Private Market Index followed a similar overall performance trajectory to the Russell 2000 but lagged the S&P 500.

The private market is heavily influenced by macro conditions, which have seen continued growth across many measures, such as employment and GDP. And while that raises the risk of further Fed tightening that could tip the economy into a recession, these fears have been avoided so far. At the outset of the selloff, economists seemed all but certain that a U.S. recession would soon occur, but a recent Bloomberg article notes that these predictions keep getting pushed further down the road, which gives hope for a soft landing. 3 4

Indeed, Fed chair Jerome Powell said in May that the odds of avoiding a recession are higher in his view than having a recession.5 To that point, the most recent inflation data showed that the annual rate fell below 5%, the first time it’s done so in two years. 6 And the most recent employment report showed a higher-than-expected increase of 339,000 jobs in May. 7

While there’s a delicate balance in play in growing the economy without overheating it, the Labor Department’s recent jobs report was largely received as good news.8 Add in the two-year bipartisan debt limit agreement that seemingly steers the U.S. clear of default for a while, and investors have some reasons to be hopeful.

In a sign of potentially improving private market trading conditions, the bid/ask spread on Forge Markets dropped to its lowest level in six months. It’s too soon to celebrate this move as a solid trend, but it’s an encouraging sign.

So, despite some headwinds early in the year, the first half of 2023 seems to be closing on a positive note. The market is not out of the woods yet, but the trail isn’t looking as steep.

The Details

Forge Private Market Index showing reduced volatility thus far in Q2

Although private market companies have lagged their public market comps, performance of companies on Forge Markets has been relatively stable with no major dislocations or shocks since the beginning of April – which may be a welcome sign for investors seeking calmer trading conditions.

The number of companies with positive Forge Private Market Index price performance has also been rising steadily since Q2 of last year with 28% of the index’s constituents being priced up. 9

Meanwhile, the median bid-ask spread on new indications of interest (“IOIs”) declined to 17% for companies with both buy-side and sell-side interest on Forge Markets, a notable decrease that may indicate that buyers and sellers are getting closer to finding common ground in this market. 10

Index analytics provide investors with a different perspective on company valuations

Whether privately held or publicly traded, most high-growth companies have suffered through a significant valuation reset in the last 18 months. As of May 31, private companies on Forge Markets are trading at a –60.9% discount compared to primary round valuations. However, it’s worth noting that this metric has only moved -2.6% since the SVB crisis in March, similar in performance to Forge Private Market Index which includes a variety of closed trade and pricing data. 11

Primary round valuations are the long-held way by which venture capitalists and employee shareholders value their shares and have long been the go-to metric in the media to express a company’s worth. Primary round valuations are deeply ingrained in the tech community.

While there are many stakeholders who want to see valuations return to their original levels, a company’s present-day valuation on the secondary market may be a useful data-point for investors now entering the market by providing additional insight into private company performance in between primary funding rounds via more frequently-updated marks.

Of the companies that traded on Forge Markets in May 2023, only 11% have primary fundraising valuations that were updated as of the last 12 months – and one in three companies has a valuation greater than 2 years old. 12

Buy/Sell ratios remain consistent in May

The ratio of buy-side IOIs to sell-side IOIs remained relatively consistent in May, as a buyer’s market continues pressing forward. 13

Likewise, the number of unique issuers with new sell-side IOIs remains at 200, offering investors a wide array of companies in different sectors to research. 14

1 Forge Data as of 6/9/2023

2 Forge Data as of 6/9/2023

3 Bloomberg, 10/17/2022

4 Bloomberg, 05/17/2023

5 Federal Reserve, 05/03/2023

6 NBC News, 05/09/2023

7 Kiplinger, 06/02/2023

8 CNN 6/2/2023

9 Forge Data as of 6/9/2023

10 Forge Data as of 6/9/2023

11 Forge Data as of 6/9/2023

12 Forge Data as of 6/9/2023

13 Forge Data as of 6/9/2023

14 Forge Data as of 6/9/2023

About the Author

Dan Chaparian is VP of Product Marketing at Forge Global. Prior to joining Forge, Dan was VP, Global Product Marketing for BlackRock's iShares ETF business. He previously held positions at Apple and Uber and is a former startup founder. Read more from Dan.

About Forge

Forge Global Holdings, Inc. (together with its subsidiaries, “Forge”) is a leading provider of marketplace infrastructure, data services and technology solutions for private market participants. Forge Securities LLC (“Forge Securities”) is a registered broker dealer and a Member of FINRA that operates an alternative trading system. 

Legal Notices and Disclosures

Past performance is not indicative of future results.

The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s), purchase agreement(s), and other applicable documentation, and will be subject to the terms and conditions and risks delivered in such documents.

This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities 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 Forge Securities, and certain Forge affiliates 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, involves a high degree of risk, and you 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.