It’s a tough time being a high priced company that didn’t go public when earnings were good. Not only are there fewer later-stage players with the resources and willingness to support such companies — SoftBank and Tiger Global, for example, have drastically pulled out — but even secondary investors have lost interest.
That is our reading of a new report by the private securities marketplace Forge, itself went public in 2021 by merging with a special purpose acquisition company. According to the report, 40% to 50% of investor interest on the platform in 2020 was focused at “various points” on companies that have been in business for more than 10 years, in recent months interest in companies 10 years or older has fallen to just 8 %.
Forge speculates there are two reasons for the trend, including that 2020 and 2021 were big years for IPOs and that many investors were eager to get ahead of public market investors. It also notes that last year some highly valued companies, such as Stripe and Instacart, lowered their valuations massively in response to “changing investor interest in risky assets and tight macroeconomic conditions.”
We would go even further and assume that investors are simply finding better deals in the public markets right now. Why spend money on a potentially overvalued private company that has missed its chance to go public when there is so much to buy that is also much more liquid?
Consider Forge itself; valued at $2 billion at the time it was launched, the outfit currently has a market cap of $340 million, which is not much more than the $238 million VCs had poured into the company when it was still privately owned .
It’s not all doom and gloom for mature, private companies; there seems to be a tipping point when it comes to how old is too old. According to Forge, while it has seen a big shift to younger companies in the secondary market, it says that in the fourth quarter of last year, the “sweet spot” for companies in today’s market — and over time it seems — are decacorns. who are between six and ten years old. In fact, the report specifically mentions interest in companies such as Disagreement, Databricks, bell and Air table.
Here’s the chart Forge put together to highlight what’s happening: