The $35 Billion Opportunity

Barrett Cohn
December 22, 2016
Late-stage private companies have been an active topic of discussion, dominating business headlines and capturing the attention and wallets of a widening pool of global investors. As an investment banker exclusively focused on this asset class, it’s exciting to watch the market for shares of late-stage private companies grow.

But it’s been difficult to satisfy journalists’ desire for more granular information about the private markets, because the balance sheets, cap tables and so much else about private companies remains … well, private. This asset class is not like the public markets, where regulators and even the public can have a detailed look at a company’s financial statements or operations. And as a firm that has built its business around our ability to discreetly handle highly confidential information, we are intentionally unable to pierce the privacy veil by naming the companies we work with.

Over the past nearly four years, Scenic has completed dozens of private-company financings (secondary and primary) and we have gathered a trove of data that in the aggregate is quite informative. Our research group has leveraged that data to add some clarity to the discussion.

Here it goes: The growth of the Private Equities Market is strongly outpacing the growth of the Dow Jones US Total Market Technology Index, nearly tripling in five years from about $11 billion in 2011 to $35 billion in 2016. We can project that the market size will grow to $38 billion in 2017, and to over $46 billion over the next three years.*

Scenic defines the private market as the tradable shares of the 168 most valuable privately held companies. Employees and early investors generally hold on average 10% of a late-stage private company’s shares. We then apply a 20% haircut — using 8% as our figure — when determining the tradable portion of these companies’ shares. We derived the combined value of these sellable shares by examining the valuations of these companies that has been implied by various funding rounds.

We don’t see the growth of the Private Market slowing down anytime soon. More private companies are enjoying the advantages of growing privately. Not filing for an IPO is the new IPO. And staying private is not hurting these companies’ ability to raise funding. Quite the contrary: long-term private companies are raising large funding rounds from an ever increasing number of leading global investors.

These trends, in the fullness of time, are likely to create an increasingly liquid market for private-company shares, as better understanding of this asset class leads to broader market acceptance by the key stakeholders.

We’ve known for quite some time that this asset class is rapidly scaling. But now we know it’s a $35 billion opportunity.

* Christiansen, Peter, Private Markets: Not so Private Anymore

Disclosure: Scenic Advisement LLC (“Scenic”) is a member of FINRA and of SIPC. The information provided is based on sources believed to be true, but Scenic has not independently verified all the facts, assumptions and estimates in the report. No representation or warranty express or implied, is made and no reliance should be placed on the report. Investments in private securities contain a high degree of risk. This material is not an offer to sell or the solicitation of an offer to purchase any security.

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Barrett Cohn
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