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In the heady days of the 1980s, companies would go IPO in five or six years after founding. Today it’s 12 years.
The 1980s also coincides with the birth of private equity and venture capitalist firms. The amount of private capital chasing efficient startups is at unprecedented levels, and valuations are rising quickly.
When companies do list on the stock markets, it is mostly to provide an exit to private market investors. Bulk of the growth in companies are occurring when they’re still private. We invest in startups when they’re young enough to be private but mature enough to have acquired a billion dollar valuations.
More than 35 public software companies were valued at more than $10 billion between 2004 and 2015. 1 in 6 out of these companies were already valued above $10 billion while being privately held. One of them was Facebook, now Meta. Imagine being on the same table as Peter Thiel and enjoying the rapid growth of Facebook in its early days.
We buy equity shares of unicorn startups on private market platforms. We also deal with angel investors and venture capitalists seeking exits.
How are startups valued?
Startups are valued every quarter by the fund’s custodian, Northern Trust. Valuations are derived through multiple metrics and data points.
Private market secondary liquidity has improved markedly over the past few years. As more and more private growth companies reach a size suitable for institutional investment, institutional capital has been migrating into the private market.
Typically, we invest around $1 million in preferred stock of startups we like. Overall, we try to cap our startup investments to 20% of the total fund size.
Pre-Initial Public Offerings (or Pre-IPOs) allow private companies the ability to raise money before they go public. They’re a way to ‘test the waters’ before an initial public offering (IPO).
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