Charlie Grimes, Managing Director and Head of Forge Global Capital Markets, and Sally Mace, Principal at Forge Securities, discuss the premium and discounts at play on the Forge platform.
Now, we saw at the end of 2022, trades on Forge’s platform were closing in an average of 50% discount to the company's last primary round valuation. So, what are some of the trends in terms of pricing and valuation that you're seeing out there in 2023?
I think that 50% discount speaks to the broader trend of what we're seeing in the market.
And I'll sort of back up just to put that in context. In 2020 and 2021. We were seeing on average companies trading at a premium to their last funding rounds. So, a company would have gone out raised venture funding and almost immediately traded above that valuation in the secondary market. We haven't seen that in well over a year now and that 50% discount is on average what we're seeing relative to companies’ last rounds.
I will say that the most important thing that we're hearing from investors is that they're looking at each company on a case-by-case basis and not applying any sort of broad discount to an entire sector or asset class. There may have been companies that raised well over a hundred X revenue multiple last year. And even if that company is trading at that average 50% discount, it may be still quite over overvalued or too rich for some investors.
So again, it's important to look at each company case by case, and additionally, considering the illiquidity discount that those investors are expecting on top of that 50% discount that you mentioned, Charlie. So those two factors combined are largely how investors are looking at pricing sort of one relative to their public comps and two the additional illiquidity factor that applies to our asset class.
And in some sort of taking all of this together, I think what our trading desk and the data offers is great insight into how companies are trading, where buyers and sellers are positioned in the market and how to think through and get smart on the topic.
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