Private Market Update - July 2023

Private market undergoing a “Great Reset” as secondary market valuations revert to prior round prices

Key Takeaways
  • Private companies trading nearly on par with their second-most-recent primary fundraising round
  • Positive signs as buy interest on Forge Markets ticks up to ten-month high
  • Companies increasingly exercising right of first refusal in 2023

New data this month illustrates just how significantly the "great reset" has shocked private company valuations after the macroeconomic events of the last 18 months.

On Forge Markets, companies are now trading at valuations nearly in-line with their second-to-last primary fundraising round versus their most recent primary round. The prices obtained in the most recent rounds have been essentially reset as private companies, buyers, and sellers navigate this new market reality.

And while this may be difficult for investors to digest, there seem to be green shoots in many corners of the tech and private market landscape. Buy interest is ticking up on Forge Markets, M&A shows signs of life, and excitement around artificial intelligence technologies has been a clear encouraging story.

Broadly speaking, it is expected that investment in AI will continue to drive much of the tech sector’s financing and M&A activity as companies rush to fold this rapidly evolving technology into their product offerings.

Examples of recent headline financing rounds include:

  • $1.3 billion in fundraising for Inflection AI, which is founded by LinkedIn co-founder Reid Hoffman and Google DeepMind co-founder Mustafa Suleyman. 1
  • $141 million in fundraising for Applied AI research company Runway. This funding is an extension to the company’s $50 million Series C fundraising round from December 2022.
  • $100 million Series B financing round for generative AI content creation platform Typeface, following its $65 million raise at launch this past February. 2

The rapid pace at which AI technology is evolving is difficult to deny and may bolster the tech sector going forward. According to a June 2023 report from McKinsey, AI “could unlock trillions of dollars in value across sectors from banking to life sciences.” 3

While AI companies are a clear focus of venture capitalists looking to bet on the next unicorn, some of the largest private equity investors have been focused on enterprise software companies.

Several large private equity deals closed during the first half of the year in this sector, including the acquisitions of Qualtrics ($12.5 billion) by a Silver Lake-led consortium; 4 Coupa ($8 billion) being taken private by Thoma Bravo; 5 and Blackstone taking Cvent private ($4.6 billion). 6

Additionally, some prominent names could potentially go public later this year. One of the world’s largest semiconductor companies, Arm, with an estimated IPO valuation of $50 billion, is expected to hit public markets during the second half of the year, likely buoyed by the continued excitement over AI. 7 Elsewhere, Navan, a travel and expense management platform formerly known as TripActions that relies on machine learning and AI to reduce costs and improve user experience, is similarly expected to go public this year, with an estimated IPO valuation of $9.2 billion. 8

Indeed, it may be an opportune time for private companies to test the public waters, especially for those that have right-sized their valuations. Year-to-date, the Renaissance IPO ETF, which tracks the performance of recent debuts, has risen over 30%, roughly double the performance of the S&P 500.

It’s too early to say if these signals foreshadow a sustained recovery period, but as the impact of the last eighteen months becomes clearer, buyers and sellers can see positive indicators in many corners of the market.

The Details

Companies on Forge Markets trading at valuations near second-to-last fundraising round

In Q1 2022, for the first time in over a year, the median private company on Forge Markets began trading at a discount to its most recent primary fundraising round.

Since then, that discount has steadily deepened – falling to as low as –61% last month before recovering slightly this month to –52%. 9

For understandable reasons, many investors and private market observers have focused on this metric as a quick and easy way to summarize the performance of private market companies. But what does it really mean to say that companies are trading at these deep discounts?

To contextualize it further, new data from Forge shows that companies are trading at just a –5% discount to their second most recent primary fundraising round. 10 In other words, the valuation growth that occurred over the last few years during the height of the low interest rate era has essentially been wiped out.

It’s possible that companies are now trading at valuations that may be more right-sized and aligned with where they were before the fundraising frenzy took place. While this valuation cut is certainly difficult to stomach for those investors and employees whose shares are priced at the most recent round, private companies clearly still have value– they've just reverted back to where they were a few years ago.

Companies increasingly exercising right of first refusal in 2023

When a private company shareholder seeks to sell stock to a third-party buyer, the company typically retains a right of first refusal (“ROFR”) for a set period (which is often 30 days) to step in and buy the stock back itself at the price negotiated by the seller and buyer. If the company waives this right, the seller can proceed to sell the stock to the buyer at the negotiated price. An increase in the exercise of this provision may indicate that buyers and sellers are matching trades at prices that the company or its investors deem to be potentially undervalued.

As of the end of Q1, companies on Forge Markets were exercising their right of first refusal on 8% of trades. 11 This number has steadily ticked up since the start of the selloff in 2022, again suggesting that companies see these depressed valuations as opportunities to buy back stock at potentially favorable prices. (Note: because of the ROFR window (again, often 30 days), Forge has not yet updated this number through the end of Q2).

Companies continue to raise money at increased valuations, but those premiums have fallen considerably in recent quarters. At the end of Q2, the median company raised money at a 1.16x premium to their last primary fundraising round, while companies in the 75th percentile saw healthier valuation increases at 1.67x. 12

Broadly speaking, fewer companies are raising money in this down market. As we noted in last month’s Private Market Update, 88% of companies had their most recent primary fundraising rounds over a year ago. It remains possible that more companies will seek additional financing (including through investor favorable down-rounds), but for now there appears to have been enough capital raised during the low-rates era combined with reduced burn rates to sustain companies for a while.

Bid-ask spread remains relatively consistent alongside Forge Private Market Index

The median bid-ask spread on new indications of interest (“IOIs”) is little changed from last month, ticking up 1% to 18% for companies with both buy-side and sell-side interest on Forge Markets. 13

The Forge Private Market Index lost –2.2 in Q2. While the index lags public markets, it’s also relatively consistent since the regional banking crisis and may signal an end to the precipitous declines that characterized private markets for much of 2022. 14

Mutual fund marks have a one-quarter lag, so the largest institutional investors in private companies are just now reporting Q1 2023 marks. On balance, mutual funds show little change in their assessment of private companies compared to Q4 2022, as investors are still marking 73% of their investments at a discount to the company’s last primary fundraising round and only 16% at a premium. 15

Buy-side interest rises to highest level in ten months on Forge Markets

IOIs from buyers represented 42.3% in June, the highest reading in ten months and outside of one outlier in August, the highest reading since November 2021. Buy-side interest has risen steadily from 26.4% in October and seems to be signaling a slow but steadily increasing appetite from investors to dip their toes back into this segment of the market. 16

Finally, there were 187 unique issuers with sell-side IOIs on Forge Markets in June 2023, slightly down from May but still relatively consistent with recent months. 17

1 Infotechlead

2 Crunchbase

3 Mckinsey


5 PR Newswire



8 Kiplinger

9 Forge Data as of 7/6/2023

10 Forge Data as of 7/6/2023

11 Forge Data as of 7/6/2023

12 Forge Data as of 7/6/2023

13 Forge Data as of 7/6/2023

14 Forge Data as of 7/6/2023

15 Forge Data as of 7/6/2023

16 Forge Data as of 7/6/2023

17 Forge Data as of 7/6/2023

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. 

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