{"id":1582,"date":"2020-01-03T00:00:00","date_gmt":"2020-01-03T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/venture-market-trends-driving-liquidity\/"},"modified":"2021-03-05T06:56:29","modified_gmt":"2021-03-05T06:56:29","slug":"venture-market-trends-driving-liquidity","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/venture-market-trends-driving-liquidity\/","title":{"rendered":"Venture market trends driving liquidity"},"content":{"rendered":"\r\n<p>The secondary market for private stock continued to grow in 2019, building on the momentum generated in 2018 where an <a href=\"https:\/\/www.industryventures.com\/estimating-the-size-of-the-secondary-market-for-venture-investments\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">estimated $30B<\/a> changed hands. In 2019, we saw an estimated $5B in notional volume in the tender offer market alone.<sup>1<\/sup> In reviewing the transactional catalysts driving this volume, several indicators suggest this deal velocity is here to stay in 2020 and beyond.\u00a0<\/p>\r\n\r\n\r\n\r\n<p>A meaningful part of the secondary deal flow we have seen on Carta and across other platforms appears to be driven by the proliferation of growth equity and late-stage venture strategies in recent years. These strategies have triggered a series of second order effects that have fueled secondary deal volume in recent years, including:<\/p>\r\n\r\n\r\n\r\n<ul>\r\n<li>IPOs occurring later in the company\u2019s life cycle<\/li>\r\n<li>The continued ascendancy of \u201cmega rounds\u201d<\/li>\r\n<li>Increased demand for the best companies following primary rounds<\/li>\r\n<li>Hybrid primary\/secondary capital raises allowing large investors to meet ownership targets while controlling dilution<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2><strong>The new normal<\/strong><\/h2>\r\n\r\n\r\n\r\n<p>Growth equity deal value had a breakout year in 2018, and is expected to have surpassed $65B in 2019, with a meaningful allocation to tech and software. Similarly, late-stage venture strategies allocated nearly $60B through Q3 of 2019, and are expected to have eclipsed $80B. As growth equity has continued to flourish, we have also seen late-stage venture try to compete for deal flow with larger check sizes, with over 70% of late-stage venture deals being $50M+ in the last couple of years. The convergence of late-stage venture and growth equity has introduced a broader investor base that is seeking alpha from high growth startups.\u00a0<\/p>\r\n\r\n\r\n\r\n<figure class=\"wp-block-image size-large no-shadow\"><img class=\"wp-image-20077\" src=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-1-4.png\" alt=\"\" title=\"\"><\/figure>\r\n\r\n<p class=\"has-text-align-center has-small-font-size\">Growth equity investments continue to trend towards new highs, and late-stage VC deals continue to get larger. Source:<a href=\"https:\/\/pitchbook.com\/news\/reports\/3q-2019-pitchbook-nvca-venture-monitor\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\"> 3Q 2019 PitchBook-NVCA Venture Monitor<\/a>.<\/p>\r\n\r\n<p>A closer look at the distribution of investment returns across early and late-stage venture strategies between \u201806 and \u201816 shows why late-stage investing has become so attractive to LPs. 68% of late-stage backed companies were likely to return 1-10x, while 63% of investments in early-stage companies won&#8217;t even return their initial committed capital. Additionally, aside from lower rates of capital impairment, recent years have shown that growth equity returns can rival those of traditional early stage venture. Against this backdrop, it\u2019s no surprise that we have seen an explosion in growth equity and late-stage venture.<\/p>\r\n\r\n<br \/>\r\n\r\n<img loading=\"lazy\" class=\"alignnone size-full wp-image-1756\" src=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-141.png\" alt=\"\" width=\"1446\" height=\"887\" srcset=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-141.png 1446w, https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-141-768x471.png 768w\" sizes=\"(max-width: 1446px) 100vw, 1446px\" title=\"\">\r\n\r\n<p class=\"has-text-align-center has-small-font-size\">The return profile for late-stage companies has become increasingly attractive for investors seeking a mix of significant upside and mitigated downside. Source: <a href=\"http:\/\/www.industryventures.com\/the-venture-capital-risk-and-return-matrix\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">Industry Ventures<\/a><\/p>\r\n\r\n\r\n\r\n\r\n\r\n<div id=\"footable_parent_7079\"\n         class=\" footable_parent ninja_table_wrapper loading_ninja_table wp_table_data_press_parent semantic_ui \">\n                    <h3 class=\"table_title footable_title\">2019 IPO class - growth deal returns<\/h3>\n                        <table data-ninja_table_instance=\"ninja_table_instance_0\" data-footable_id=\"7079\" data-filter-delay=\"1000\" aria-label=\"2019 IPO class - growth deal returns\"            id=\"footable_7079\"\n           data-unique_identifier=\"ninja_table_unique_id_1590162923_7079\"\n           class=\" foo-table ninja_footable foo_table_7079 ninja_table_unique_id_1590162923_7079 ui table  nt_type_legacy_table selectable striped vertical_centered  footable-paging-right ninja_table_search_disabled ninja_table_pro\">\n                <colgroup>\n                            <col class=\"ninja_column_0 \">\n                            <col class=\"ninja_column_1 \">\n                            <col class=\"ninja_column_2 \">\n                            <col class=\"ninja_column_3 \">\n                            <col class=\"ninja_column_4 \">\n                            <col class=\"ninja_column_5 \">\n                            <col class=\"ninja_column_6 \">\n                    <\/colgroup>\n        <thead>\n<tr class=\"footable-header\">\n                                                                                                                        <th scope=\"col\"  class=\"ninja_column_0 ninja_clmn_nm_company \">Company<\/th><th scope=\"col\"  class=\"ninja_column_1 ninja_clmn_nm_leadvc \">Lead VC<\/th><th scope=\"col\"  class=\"ninja_column_2 ninja_clmn_nm_dealdate \">Deal Date<\/th><th scope=\"col\"  class=\"ninja_column_3 ninja_clmn_nm_valuationm \">Valuation (M)<\/th><th scope=\"col\"  class=\"ninja_column_4 ninja_clmn_nm_currentvaluationm \">Current Valuation (M)<\/th><th scope=\"col\"  class=\"ninja_column_5 ninja_clmn_nm_estimatedirr \">Estimated IRR<\/th><th scope=\"col\"  class=\"ninja_column_6 ninja_clmn_nm_timeyears \">Time (Years)<\/th><\/tr>\n<\/thead>\n<tbody>\n\n        <tr data-row_id=\"224\" class=\"ninja_table_row_0 nt_row_id_224\">\n            <td>Zoom<\/td><td>Sequoia<\/td><td>1\/17\/2017<\/td><td>$885<\/td><td>$25,230<\/td><td>267%<\/td><td>2.6<\/td>        <\/tr>\n            <tr data-row_id=\"225\" class=\"ninja_table_row_1 nt_row_id_225\">\n            <td>Crowdstrike<\/td><td>Accel<\/td><td>5\/11\/2017<\/td><td>$925<\/td><td>$19,273<\/td><td>283%<\/td><td>2.3<\/td>        <\/tr>\n            <tr data-row_id=\"226\" class=\"ninja_table_row_2 nt_row_id_226\">\n            <td>Slack<\/td><td>KPCB<\/td><td>10\/31\/2014<\/td><td>$1,000<\/td><td>$15,518<\/td><td>77%<\/td><td>4.8<\/td>        <\/tr>\n            <tr data-row_id=\"227\" class=\"ninja_table_row_3 nt_row_id_227\">\n            <td>PagerDuty<\/td><td>Accel<\/td><td>4\/26\/2017<\/td><td>$650<\/td><td>$2,720<\/td><td>86%<\/td><td>2.3<\/td>        <\/tr>\n            <tr data-row_id=\"228\" class=\"ninja_table_row_4 nt_row_id_228\">\n            <td>Lyft<\/td><td>Coatue<\/td><td>4\/2\/2014<\/td><td>$721<\/td><td>$15,956<\/td><td>78%<\/td><td>5.4<\/td>        <\/tr>\n            <tr data-row_id=\"229\" class=\"ninja_table_row_5 nt_row_id_229\">\n            <td>Uber<\/td><td>GV<\/td><td>8\/23\/2013<\/td><td>$3,460<\/td><td>$57,732<\/td><td>60%<\/td><td>6.0<\/td>        <\/tr>\n    <\/tbody><!--ninja_tobody_rendering_done-->\n    <\/table>\n                    <style type=\"text\/css\" id='ninja_table_custom_css_7079'>\n                        #footable_7079  {\n        font-family: inherit;\n        font-size: 14px;\n    }\n\n                <\/style>\n                \n    \n    \n<\/div>\n\r\n\r\n\r\n\r\n<p>While larger fund sizes have likely contributed to this phenomenon, the venture industry has also become increasingly collaborative with regard to large funding rounds. As round sizes increase, more investors are participating, as firms try to allocate capital to the likely category winner. Carta\u2019s own fundraising history provides further anecdotal evidence of this. While our Series D last year only included 1 new investor, our recent $300M Series E added 4 late-stage funds to <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/seriese\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">our cap table<\/a>.<br \/><br \/><img loading=\"lazy\" class=\"alignnone wp-image-1755 size-full\" src=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-140.png\" alt=\"\" width=\"1446\" height=\"887\" srcset=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-140.png 1446w, https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-140-768x471.png 768w\" sizes=\"(max-width: 1446px) 100vw, 1446px\" title=\"\"><\/p>\r\n\r\n\r\n\r\n\r\n\r\n<p class=\"has-text-align-center has-small-font-size\">Larger rounds are marked by increased investor collaboration, as firms try to allocate capital to the likely category winner. Source: <a href=\"https:\/\/pitchbook.com\/news\/reports\/3q-2019-pitchbook-nvca-venture-monitor\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">3Q 2019 PitchBook-NVCA Venture Monitor<\/a><strong>.<\/strong><\/p>\r\n\r\n\r\n\r\n<h2><strong>What does all of this mean for the secondary market?<\/strong><\/h2>\r\n\r\n\r\n\r\n<h3><em>Longer runways for companies<\/em><\/h3>\r\n\r\n\r\n<p>As more and more capital is piling into the most attractive companies later and later into their lifecycle, coupled with their ability to raise awareness and cultivate a powerful brand while private, the typical catalysts for going public are diminishing. This means that for early employees and investors, the time to exit is extending and as a result, pre-exit liquidity is increasingly important. A look at IPOs over the last two decades further evidences the evolution of the IPO company from hyper-growth startup, to mature operating business. As this lifecycle becomes the norm, companies will need tools like secondary liquidity to leverage in the intense battle to attract, incentivize, and retain top talent, and investors will need ways to realize gains and return capital to investors for the next fund.<\/p>\u00a0\r\n\r\n<br \/>\r\n\r\n<img loading=\"lazy\" class=\"alignnone size-full wp-image-1760\" src=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-155.png\" alt=\"\" width=\"1446\" height=\"887\" srcset=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-155.png 1446w, https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-155-768x471.png 768w\" sizes=\"(max-width: 1446px) 100vw, 1446px\" title=\"\">\r\n\r\n\r\n<p class=\"has-text-align-center has-small-font-size\">Startups continue to raise more capital and have higher initial IPO market caps. Source: <a href=\"https:\/\/pitchbook.com\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Pitchbook (opens in a new tab)\">Pitchbook<\/a>.<br \/><br \/><img loading=\"lazy\" class=\"alignnone size-full wp-image-1759\" src=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-154.png\" alt=\"\" width=\"1446\" height=\"887\" srcset=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-154.png 1446w, https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-154-768x471.png 768w\" sizes=\"(max-width: 1446px) 100vw, 1446px\" title=\"\"><\/p>\r\n\r\n\r\n\r\n<h3><em>Institutions continue seeking alpha<\/em><\/h3>\r\n\r\n\r\n\r\n<p>As companies stay private longer and growth and late-stage strategies continue to outperform on a risk weighted basis, traditional VCs will continue migrating to <a href=\"https:\/\/a16z.com\/2019\/05\/01\/late-stage-venture\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">multi-strategy<\/a> fund models, and the traditional institutional investors will continue seeking alpha in the private markets. However, for the most promising companies, secondary transactions are the only real option for many investors to take a position. In some ways, more traditional institutional investors are better positioned to drive secondary volume, considering they don\u2019t face the same limitations on secondary purchases that many venture capital firms face <a href=\"https:\/\/www.law.cornell.edu\/cfr\/text\/17\/275.203(l)-1\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">under the law<\/a>. For this reason, we expect more VC firms to register as Investment Advisors to avoid this limitation, like Andreessen Horowitz (an investor in Carta) <a href=\"https:\/\/www.forbes.com\/sites\/alexkonrad\/2019\/04\/02\/andreessen-horowitz-is-blowing-up-the-venture-capital-model-again\/#7865192a7d9f\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">recently did<\/a>. As we continue to see a more diverse mix of investors enter the market for growth and late-stage companies, secondary liquidity events will continue to be an important entry point.\u00a0<\/p>\r\n\r\n\r\n\r\n<h3><em>More big deals<\/em><\/h3>\r\n\r\n\r\n\r\n<p>As check sizes continue to grow and early investors, founders, and employees continue to be more expectant of pre-exit liquidity, we will continue to see <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/private-stock-picking-liquidity-job-employee\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">companies with excess demand following large rounds<\/a> that can be put to work in secondary transactions. In addition, because these large growth and late-stage rounds can carry heavy dilution penalties for investors, we also expect that some companies will continue structuring hybrid primary\/secondary rounds that allow new investors to hit their ownership targets while controlling dilution.<\/p>\r\n\r\n<br \/>\r\n\r\n<img loading=\"lazy\" class=\"alignnone size-full wp-image-1761\" src=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-157.png\" alt=\"\" width=\"1446\" height=\"887\" srcset=\"https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-157.png 1446w, https:\/\/www-staging.carta.com\/sg\/wp-content\/uploads\/sites\/9\/2020\/01\/Group-157-768x471.png 768w\" sizes=\"(max-width: 1446px) 100vw, 1446px\" title=\"\">\r\n\r\n\r\n\r\n<p class=\"has-text-align-center has-small-font-size\"><strong>\u201c<\/strong>Megarounds\u201d have become an increasingly prevalent part of the larger VC funding landscape. Source: <a href=\"https:\/\/pitchbook.com\/news\/reports\/3q-2019-pitchbook-nvca-venture-monitor\" target=\"_blank\" rel=\"noopener\">Pitchbook<\/a>.<\/p>\r\n\r\n\r\n\r\n<h2><strong>Bottom line<\/strong><\/h2>\r\n\r\n\r\n\r\n<p>As these trends in VC and private equity persist, we should expect for the secondary market to continue blooming, and companies and investors will need to develop and hone their secondary market strategies.<\/p>\r\n\r\n\r\n<hr class=\"wp-block-separator\" \/>\r\n\r\n\r\n<p class=\"has-small-font-size\"><sup>1<\/sup> \u00a0Our estimate represents an annualized figure derived from Carta tender offer volume, as well as reported tender offer volume statistics from Nasdaq Private Markets.\u00a0<\/p>\r\n\r\n\r\n\r\n<p class=\"has-small-font-size\">DISCLOSURE: This communication is being sent on behalf of eShares, Inc. dba Carta, Inc. (\u201cCarta\u201d). This communication is not to be construed as legal, financial or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.<\/p>\r\n\r\n\r\n\r\n<p class=\"has-small-font-size\">This post contains links to articles or other information that may be contained on third-party websites.\u00a0 The inclusion of any hyperlink is not and does not imply any endorsement, approval, investigation, or verification by Carta, and Carta does not endorse or accept responsibility for the content, or the use, of such third-party websites. Carta assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided on such third-party websites. All product names, logos, and brands are property of their respective owners in the U.S. and other countries, and are used for identification purposes only. Use of these names, logos, and brands does not imply affiliation or endorsement.<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>In 2019, we saw an estimated $5B in notional volume in the tender offer market alone. Several indicators suggest this deal velocity is here to stay in 2020 and beyond.<\/p>\n","protected":false},"author":80,"featured_media":1724,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[42,66,94],"tags":[5,149,39,104],"acf":[],"_links":{"self":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/1582"}],"collection":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/users\/80"}],"replies":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/comments?post=1582"}],"version-history":[{"count":0,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/1582\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media\/1724"}],"wp:attachment":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media?parent=1582"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/categories?post=1582"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/tags?post=1582"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}