Over the past year, markets have taken on an Alice in Wonderland bent, responding seemingly counterintuitively to economic data. This dynamic is one that Alice might have referred to as ‘curiouser and curiouser.’
For example, weak jobs numbers were often viewed as a positive, as it could mean that the Fed would soon start cutting rates. After the Fed once again held rates steady after its July meeting, the red pill of fresh economic data indicated further slowing. 1
Now, up is up and down is down, or at least more so than it used to be. Stocks declined sharply following soft labor market numbers for July,2 but they then bounced back, driven by factors like jobless claims coming in below expectations, indicating that the economy isn't necessarily floundering.3
The yield curve also briefly uninverted in early August after two years of the reverse.4 While in the short-term that can indicate recessionary fears, as investors anticipate quick rate cuts by the Fed, it's also possible that the yield curve normalizing both indicates and supports a stabilizing economy. If long-term rates start to outpace short-term ones, that could encourage more long-term lending for business loans, mortgages, and other assets.5
So, what does this all mean for private markets? While this recalibration is still in its early days, investors could be more hesitant about tying up cash in companies that rely on a rising economic tide to lift their boats. Instead, the bifurcation between top performers and bottom performers is widening.
In July, private companies trading on Forge did so at a -42% median discount compared to their last primary funding round. This marks a slight drop from the -32% rate in June, although that could be an outgrowth of a small sample size – dragged by a marked summer slowdown – skewing the median. Companies in the top 90th percentile of trade premiums jumped to an average of 64% premium to last primary round, while those in the 75th percentile rose to a 15% premium, after spending most of the past two years in negative territory. Meanwhile, companies already listing toward the bottom sank further, with those in the 25th percentile falling to a -67% discount to their last primary round and the 10th percentile dropping to -81%.6
As a whole, these discounts contributed to the Forge Private Market Index lagging some public market indexes. The Forge index fell by -1.3% last month, vs. SPY (an S&P 500 index fund) gaining 1.2%. That said, the tech-heavy Invesco QQQ, which tracks the Nasdaq-100 index, had a worse month, falling by -1.7%.7
With this recalibration, investors seem to have at least temporarily rejected the blue pill when it comes to over-indexing on tech exuberance and are instead looking more closely at underlying financial metrics. That's not to say that trends such as AI funding are over by any means. But as PitchBook reported, amidst the trend of down rounds, investors are prioritizing startups with solid prospects for profitability over those focused solely on aggressive growth.8
The technology IPO pipeline value grew to $102 billion in July and includes companies that have publicly announced plans for an IPO or have either publicly or confidentially filed a Form S-1, according to Forge Technology IPO Calendar which tracks pre-IPO activity among venture-backed, late-stage technology companies. Companies currently in the pipeline include Chime, CoreWeave, DataMinr, and Klarna who have publicly announced their IPO intentions, and ServiceTitan, Cohesity, and Cerebras who have filed Form S-1s. Forge is regularly tracking the movements and changing value of the tech IPO pipeline.
The Forge Private Market Index posted a -1.1% performance over the three-month period ending in July, with performance attributable to a lagging enterprise technology sector which declined 4.0% in the period, according to Forge’s cap-weighted index data. Meanwhile, the Fintech sector, which had been shouldering much of the positive performance for the three-month period lost headway in the last week of July, still posting a 1.3% gain for the period despite erasing most of its recent outperformance in the final week of July. The index is up 4.0% year-to-date and at its latest rebalance on July 1st, Fanatics, Lambda, Tae, and xAI, all joined the index for the first time.
The summer slowdown was meaningful in July, when the fewest companies with matched indications of interest (IOIs) were posted since January of 2023. A similar dip in summer months has been observed in three of the last four years. Amid the lighter-than-usual dataset, companies in the 75th percentile and above posted average premiums of 15% to their last primary funding round. Companies in the top 90th percentile averaged 64% premium to their last funding round. Meanwhile the bottom tenth percentile averaged a -81% discount to their last funding round, while the median dropped to -42%.
The bid/ask spread jumped in July to 15.5%, after falling to a one-year low in June, driven in part by a higher mix of new companies amid a lower-than usual total number of companies with matched IOIs in the month (the number of companies with matched IOIs was 70% of the average number over the last 12 months) 9.
The percentage of buy and sell IOIs was roughly even for the month, with 49% buy-side and 51% sell-side IOIs, in line with May. The buy IOI percentage for every month in 2024 remains higher than any month in 2022 or 2023.
Unique companies with sell-side interest rose to 205 in July after a brief dip in June when just 171 unique companies tallied new sell-side interest.
About the Author
Lindsay Riddell, EVP of Corporate Marketing and Communications at Forge, has over 20 years of experience in tech and finance. She specializes in developing content strategies that drive brand engagement and business growth. Her background in journalism enhances her ability to create clear, impactful narratives that resonate with diverse audiences. Read more from Lindsay.