Tracking the marketwide performance of US private companies and startups is difficult. Private companies, unlike their public counterparts, are not required to disclose performance or valuation information to the public. Analysts and industry experts have relied on fragmented information and anecdotal evidence to track private market trends. <\/p>\n\n\n\n
Carta helps private companies<\/a>, public companies<\/a>, investors<\/a>, and employees manage equity. Specifically, Carta manages hundreds of billions in equity value and thousands of cap tables and valuations. We have anonymized and aggregated data about the value of equity managed on our platform, which can provide insights into the private market as a whole.<\/p>\n\n\n\n To help the industry track performance, we built the Carta 100 Index<\/a>, launching today. The Carta 100 index tracks the performance of the most valuable private companies on the Carta platform over time.1<\/sup> We believe the Carta 100 Index provides the most thorough measurement of US private companies’ performance, and we hope this index provides new insights on the funding environment for private companies.<\/p>\n\n\n\n In this post, we will outline the methodology our data team used to build the Carta 100 Index<\/a>.<\/p>\n\n\n\n The Carta 100 Index starts on June 30, 2017, with an initial value of 100. Changes in company valuations are indexed against this date to track changes over time. As an example, a 1% change on July 1, 2017 would lead to an Index value of 101. If the Index increased an additional 1% on July 2nd, the index would rise to 102.01.<\/p>\n\n\n\n We initially selected the 100 most valuable companies on Carta for the Carta 100 Index<\/a>, making sure they met certain criteria described later in this post. To determine the most valuable companies to include, we calculated the post-money valuation of qualifying companies after their last fundraising round. Post-money valuation is calculated by multiplying the number of fully-diluted shares by the share class price per share of the last fundraising round. For example, a company with 1,000,000 fully diluted shares that last raised at $5.00 per share in a Series B financing would have a post-money valuation of $5,000,000 (1,000,000 x $5.00).<\/p>\n\n\n\n <\/p>\n\n\n\n To calculate changes in value, we use a slightly different method. Growing venture-backed companies generally raise financings rounds every 12-24 months, and valuations change dramatically between these rounds. To calculate changes in value, we look at two key metrics: common stock strike price and preferred stock price.2<\/sup> <\/p>\n\n\n\n The price of common stock is set by a 409A valuation<\/a>. 409A valuations determine fair market value and are necessary for tax compliance reasons. While the common stock price is rarely used by investors, the changes in value closely match the performance of a company.<\/p>\n\n\n\n In addition to looking at changes in the value of common stock, we also look at the changes in preferred stock. We used the preferred price per share most recently paid. When looking at changes in preferred stock we use the preferred price per share of the most recent share class from the most recent round. To determine the post money valuation for the round we do so on an as-converted basis. If the preferred stock is worth $10, with a conversion ratio of 2, and there are 1,000 shares, the post-money valuation would be $10 \u00f7 2 x 1,000 = $5,000.<\/p>\n\n\n\n But looking at common and preferred stock price has its challenges. Specifically, movements in common and preferred stock can happen independently, and companies\u2019 capitalization structures differ. To control for these situations, we developed a weighting system. We weight common stock and preferred stock prices based on a company\u2019s capitalization structure. If a company\u2019s equity capitalization consists of 25% preferred shares, then 25% of the weighted value comes from the funding price.<\/p>\n\n\n\n To qualify for the Carta 100 Index<\/a>, a company must meet the following the requirements:<\/p>\n\n\n\n We refresh the Index quarterly. On the first day of each quarter, eligible companies with the highest post-money valuations will replace current Index companies.<\/p>\n\n\n\n To ensure the Index always has 100 companies, we remove companies immediately if they dissolve, declare bankruptcy, have an M&A event, or go public. If a company has an M&A event and ceases to operate independently, due to the frequent lack of availability of M&A transaction details, we assume that there is no change in the company value and it is replaced. Corporate transactions such as a stock split, which do not change the total value of a company, do not change the Index value. <\/p>\n\n\n\n Observations are from 6\/30\/17 to 8\/13\/18<\/em><\/p>\n\n\n\nSetting the Index\u2019s initial conditions<\/h2>\n\n\n\n
Calculating the value of a private company<\/h2>\n\n\n\n
Choosing the first 100 companies<\/h4>\n\n\n\n
Calculating changes in value<\/h4>\n\n\n\n
How companies qualify for the Carta 100 Index<\/h2>\n\n\n\n
Early observations from tracking the Carta 100 Index<\/h2>\n\n\n\n