The New Index for the Private Market

Author

Adam Katz
July 24, 2024

A New Private Market Index

Elon Musk’s SpaceX recently made news by launching a tender offer with a valuation of $210 billion, the highest ever for a privately held U.S. company. This is more than a 50% rise from its valuation of $137 billion in January 2023 and nearly a 200% gain over its value of $74 billion in early 2021. Naturally, success stories like this drive investor interest, and investing in well-known, late-stage startups like SpaceX has grown in popularity in recent years. These “Pre-IPO Unicorns” are staying private longer, and in some cases, have no apparent plan to ever go public. For most investors, buying stock on secondary exchanges is the only way to get access to these companies, but price discovery in these markets can be challenging.

(Bloomberg)

It can be difficult to get reliable information about the value of Pre-IPO companies, as official valuations are generally recorded only during funding rounds or tender offers, which happen infrequently, if at all. In between those events, shares do get traded, but how do the buyers or sellers know how to properly value them? How can they compare their performance to the performance of the overall market?

Why do investors need a private market index?

In any investment class, potential buyers and sellers need to gather as much information as possible to make informed decisions. Unlike with publicly traded companies, who have a clear share price and market capitalization, the value of private companies can be opaque. Without a precise market value of a company, investors can be hesitant to make any moves, leaving the market at a standstill, and making it difficult for sellers to access liquidity and for buyers to get access to the asset class at all.

For companies with more frequent funding news, there is more information, but SpaceX still often trades for different prices on different exchanges. For the overall market for private companies, it is even more difficult to get an accurate picture of its performance. Without knowing the short-term and long-term trends of the overall market, investors have no basis of comparison to other asset classes. 

Just like the S&P 500 has done for the public markets, a reliable, private market index can solve these issues.

Who is Hiive?

Hiive is a marketplace for private securities, specifically shares of pre-IPO, venture-backed companies who have achieved a valuation of a certain level, generally around $400 - $500 million. This ensures that only late-stage, high-profile startups are on the platform and that there is ample buying and selling volume for the company’s shares. Besides SpaceX, other notable companies trading frequently include Ripple, Kraken and Lightmatter. Investors have to be accredited to trade on the Hiive, and there is a minimum investment of $25,000. Shareholders who wish to sell on the platform do not need to be accredited to do so.

The platform is a way for shareholders of these companies to get liquidity, and a way for individual investors to get exposure to pre-IPO shares, which has historically been difficult to access unless you’re a premier venture capitalist. It also serves as a resource for investors, shareholders, companies, and the general public offering price discovery and market information.

Hiive was launched in May 2022, and since then has grown exponentially. It is now seeing over $100 million in monthly transaction volume. It has handled transaction sizes from $25,000 to $50 million, and is on track to surpass $1 billion in total volume in 2024.

What is the Hiive50?

The Hiive50 is a newly launched price index for large cap private securities that is meant to be similar to the Nasdaq 100 or S&P 500 for private markets. It is an equal weight index of the 50 most actively traded companies on Hiive’s marketplace from the previous quarter, which re-calculates hourly. This index now includes companies like Liquid Death, Discord and Epic Games. The index will be updated hourly based on the most recent price movements of the underlying companies, and is based on real user orders and trades on the Hiive platform.

Why is the Hiive50 important?

The Hiive50 is free to access and publicly available, making it a potentially valuable tool for investors, who can track it for an indication of how the overall market for large-cap, late-stage startups is performing. By looking at the movement and historical performance of the Hiive50, investors may better understand both micro and macro trends and the short-term and long-term volatility of this asset class. The more information that investors have at their disposal, the more confident they can be about their investment strategies and constructing their portfolios.

For private companies, membership in the Hiive50 is a marker of their success, and means that there is more demand for their shares than the other 99.9% of private, VC-backed companies. It means they may be viewed as a prime candidate for eventually going public, which in turn could drive even more investor demand.

For employees of these companies, Hiive50 can be an important tool in determining what to do with their shares. If someone works for Lightmatter, for example, they can check both the Hiive50 page and the Lightmatter page and explore all the data. Not only does Hiive’s platform provide price discovery for the current value of their share, but the Hiive50 can help them see how their company is performing relative to the rest of the market. By understanding market trends, it can help them make a better informed decision on the right time to sell their shares.

The Hiive50 is the first step towards the creation of index funds for private stocks, allowing investors to get diversified exposure to pre-IPO startups. For now, it does not exist, but in the future, perhaps investors will be able to buy shares in a Hiive50 index fund.

Make the Hiive50 part of your morning routine

The Hiive50 promises to bring transparency to a notoriously opaque asset class, and will allow everyone - investors, companies, employees, the media - to track the performance of late-stage, VC-backed startups. Just like the S&P 500 or the Dow Jones Industrial Average, investors should get in the habit of checking the Hiive50 every morning to gauge the market’s temperature.

Any views expressed here do not necessarily reflect the views of Hiive Markets Limited (“Hiive”) or any of its affiliates. Vincent is not a broker dealer or investment adviser. This communication is for informational purposes only, and is not a recommendation, solicitation, or research report relating to any investment strategy, security, or digital asset. All investment involves risk, including the loss of principal and past performance does not guarantee future results. There is no guarantee that any statements or opinions provided herein will prove to be correct. Vincent may be compensated for user activity resulting from readers clicking on Hiive affiliate links. Hiive is a registered broker-dealer and member of FINRA / SIPC. Find Hiive on BrokerCheck.