American unicorns: When primary rounds are distant, secondary markets provide clarity

Unlike in the public markets, valuations of so-called ‘unicorn’ start-ups might only be updated following funding rounds. What if investors want insights more frequently?

November 14, 2022

Hill Chart Shape

Epic Games, Chime Bank, Databricks, and SpaceX are four of the most well-known US startups in recent years, all of which have gone from small beginnings to wide renown.

But like all venture capital-backed startups, their valuations have changed quite infrequently over their lifetimes, only being adjusted upon new funding rounds, which can be anywhere from a few months to more than 18 months apart. Even then, data for private companies like this is hard to come by, and difficult to evaluate.

What are the factors that are taken into account for these exorbitant valuations, and how would an investor that is not on the capitalization table or without access to company financials be able to understand how these valuations are decided upon?

Independent pricing and benchmarks for private markets will be increasingly important as more institutional investors seek alternative assets, according to a study by Cerulli Associates, a Boston-based research and consulting firm. The study found that more than 70% of institutional investors said they will increase or maintain their allocations to alternatives in the next five years. But the study also found that a majority of institutional investors are not satisfied with the pricing and benchmarks currently available for private markets assets.

In this exercise, we look at ApeVue’s composite daily stock price for each of the four above-mentioned US companies, multiplied by the firm’s shares outstanding (including any stock splits) to create an implied valuation on a daily basis dating back to December 31, 2020.

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