“…the line between public and private markets continues to blur.”
‘Connecting the Dots’
// Price action in the public markets is simply how a security’s price moves over time. Does a stock look strong or weak? Is the movement based on heavy or light volume? Has it been a quick move up or a slow grind down? With the public markets, this information is abundant where an investor/trader can get instantaneous data and feedback.
So what does the ‘price action’ look like for the private markets? Mainly, it comes through funding rounds which are announced via all the financial publications. Whereas the public market gives you price by the second (actually less than a second), the private markets will hopefully give you a kernel of information yearly. Over time, you’ll be able to connect a few dots which usually form a line that is up and to the right. But in regards to a public security, a stock’s path can be all over the place.
My bet is that not only will there be more dots to connect, but also the space between these private market dots will get shorter and shorter. Though it will never be as fluid as a public stock, that private ‘stock chart’ will start to smooth out.
// When looking at price or valuation in the private markets you need to look for other breadcrumbs that might point to a company’s ‘momentum’ or ‘strength.’
Here’s another way to connect the dots which could influence the ‘price action’ as shown through the Palantir —> Addepar —> Zanbato relationship.
As Adam Neuman might say, Palantir, the big data analytics company, has “played the private market game to perfection.” Co-founded by Peter Thiel in 2004, the company has chosen to tap the private markets and ‘stay private for longer,’ similar to many early-stage companies. The company has raised ~$2.75 billion (already surpassing a Series J round 5 years ago) and was reported to be valued at ~$26 billion last fall.
Which brings me to…the wealth management platform Addepar. Joe Lonsdale, a Thiel disciple, was also a founder of Palantir, but is also a founder of Addepar. Founded in 2009 the company thus far has raised $245 million in funding, most recently $40 million last March.
Which brings me to…Zanbato. Zanbato, with the mantra of ‘Trust in Private Markets,’ is a crossing network for institutional-sized block of private securities. Surprisingly, to me at least, the company was founded in 2010, also co-founded by…Joe Lonsdale. According to Crunchbase, the company has only raised $32.6 million to date and is around the Series C stage. As of late, it appears the company has started to take a more public profile within the financial landscape.
Here’s an article from Bloomberg this past week touching on all three of these companies.
Because I believe Thiel and Lonsdale are cut from the same cloth, they are most likely consulting the same playbook. Thiel and Lonsdale are extremely smart and they also know how the capital game is played in Silicon Valley. Even though Palantir has more momentum, a lot of value has been captured in the private markets, so maybe, Addepar could be considered undervalued assuming the company is on a similar trajectory. And if you’re willing to take on more risk, perhaps going further up the pipeline to Zanbato, even more value can be found.
There is the investment perspective where you buy based on projected future growth and cash flows, but there’s also the trading perspective. By taking the trader mindset, you buy inventory now, knowing there is a high likelihood there will be a buyer in the near future.
// There are private markets and then there are PRIVATE markets.
Daniel Adamson, a Senior Managing Director at Wafra and the President of Capital Constellation, talks with Tom Seides on Capital Allocators about how a group of large asset owners came together to scale their resources.
The overall conversation is a bit outside of my purview, but Adamson’s quote rings true…
“one of my biggest pet peeves, is that, people tend to look at financial markets as either zero-sum, or even negative sum. And I think that comes from the fact that we were raised to view public markets as the archetype of how things are done, and I win you lose, you win I lose…In private markets things are very different. This is about value creation fundamentally. And I think that’s never been more true than today, given where entry multiples typically are. You have to have a value creation story.”
// Pre/Post IPO articles from last week
~ Another example of the blurring of the private and public markets. How do you value a public company that withdraws guidance?
“It’s forcing investors to think long-term, rather than obsess about what the valuation should be in the short term.” Jim Tierney, CIO for AllianceBernstein, essentially sharing the same sentiment as the LTSE.
~ Even though I said above early-stage company’s value is usually up and to the right, we’re starting to see some ‘volatility.’
Uber in Talks to Lead $170 Million Lime Investment at Lower Valuation (The Information)
‘Uber is in talks to lead a $170 million financing in scooter rental firm Lime, whose business has dropped sharply amid the coronavirus pandemic…the potential deal would value Lime on paper at $510 million, after the proposed cash infusion, a 79% drop from its previous valuation.’
~ Silver Lake filling the void left by Soft Bank.
‘With SoftBank retrenching and other firms waiting for the buyout market to recover, Silver Lake has reasserted itself.’
~ The private markets along with crowdfunding have a lot of common threads so it’s good to see the SEC getting more involved and facilitating access to capital.
SEC loosens crowdfunding regs so small businesses can raise alternative financing in pandemic (TechCrunch)
‘The SEC said that it will lift restrictions related to reporting requirements and accelerate the approval of crowdfunding listings so that main street businesses and small startups can try to raise funds from speculative investors who may have cash on hand.’
~ From sneakers to classic cars to art to playing cards, soon everything will be tradeable.
‘The market for the popular strategy game’s cards has started to resemble Wall Street, complete with speculation, arbitrage, and yes, insider trading.’
Thanks.