What exactly is happening with the valuations of later stage startups? An index created by a local company that operates a marketplace for shares in private, venture-backed companies purports to offer some answers.
Unveiled last week by Forge Global Holding Inc., the Forge Private Market Index is comprised of the 75 most actively traded companies on the San Francisco company's exchange. Every quarter, based on which companies have become the most actively traded, Forge adds or subtracts companies from the index.
In setting up the index, which reflects the actual traded prices of its constituent companies, Forge included marketplace activity dating back to 2019. Although the index surged through the beginning of last year as part of the post-Covid boom, it plunged 44% on the year in 2022 and is down another 17% so far this year.
"Prices really crashed after the bubble year of 2021 but they have leveled off a bit in recent months," Howe Ng, head of analytics at Forge Global, told Bay Area Inno.
There's currently no easy way to invest in the basket of stocks that comprise the index. But if someone had been able to invest $10,000 in the index in 2019, at the start of the index's data, that investment would have peaked at $49,000 at the beginning of last year. By last week, the investment would have been worth $22,700.
That up-and down performance roughly tracks that of the major public stock indices, including the Nasdaq composite and the S&P 500, albeit with a bit of a lag and a higher peak. Part of that is because trading on public markets involves far more stocks, a much larger volume of deals and more frequent trading, Ng said.
"Trading of private stocks just doesn't happen as often as it does with public stocks," he said. "Because of that there is a level of transparency in the public markets that hasn't existed on private markets until now. We think our index gives traders a valuable tool to help them see what is happening."
At present, the basket of stocks in Forge's index contains numerous Bay Area companies, including Instacart, the San Francisco-based grocery delivery service provider legally known as Maplebear Inc., and Stripe Inc., the South San Francisco-based payments technology company.
Both of those companies are likely weighing down the index after seeing their valuations plunge over the last two years. Instacart's worth dropped from a high of about $39 billion two years ago to a recent valuation of between $10 billion and $12 billion. Stripe went from a valuation of $95 billion two years ago also to a new valuation this year of about $50 billion.
The companies in Forge's index are typically later stage and more highly valued than most venture-backed businesses, because that is when their shares start to show up on private exchanges, Ng said.
Trading activity on Forge's market has seen the same bubble that the public and private markets have seen. The value of trades on its exchange jumped from about $1.9 billion in 2020 to about $3.2 billion in 2021 before plunging to about $1.2 billion last year, it said in its most recent quarterly report. Forge posted a loss for 2022 of about $111.9 million, compared to a net loss of about $18.5 million the prior year.
After going public via a merger with a blank check company in March 2022, Forge (NYSE: FRGE) ended its first day of trading with a market capitalization of more than $3 billion. Its market value is now about $259 million.
