While 2018 was the worst year for public equities in a decade, the private markets continued to thrive. According to a new PwC/CB Insights report, over $99.5 billion was raised in the U.S. venture capital market across 5,500+ deals. A record 53 VC-backed companies achieved valuations over $1 billion and there were more “mega-funding founds” ($100 million+) than ever before.
What does this tell us? For one, all of the talk about the private markets losing steam doesn’t match the numbers. Companies are continuing to remain private longer and are using the abundance of private capital to focus on growing their business. It also tells us that old paradigm of a “private company” no longer applies. The five largest U.S. IPOs in Q4 2018 were north over $1.5 billion. Compare that to 10 years ago when the median IPO was $156 million. The private markets have enabled companies to grow like never before, and with VC activity remaining high, that trend won’t reverse anytime soon.
Of course, all of this growth won’t stem the need for secondary liquidity. Investors placing their money in emerging startups will want to realize some return on investment in lieu of an IPO – which is why a robust secondary market for private assets is needed.
At Templum, we’re working on building an entirely new framework for private capital formation through the use of smart securities and blockchain technology. It is our belief that as the SEC and FINRA begin to get more involved in private market activity, digitized securities can offer a more efficient, transparent solution for the issuance and secondary trading of private assets.
While companies will continue to trade on the public markets, the alternative path is becoming increasingly appealing. Looking ahead, we anticipate that increased private funding will necessitate the use of smart securities for certain asset classes, and we look forward to continuing to support the market through innovative new solutions.