Private Companies Held Their Own in January’s Rocky Markets (And Not Just for the Obvious Reasons)

With investors buying and selling more shares than ever in pre-IPO companies, a more nuanced picture of the private markets is emerging.

Brendon Thorne/Bloomberg

Brendon Thorne/Bloomberg

January was the worst month for public stocks since March 2020 as investors wrestled with inflation fears. In contrast, the value of private companies, by a number of measures, held far steadier last month.

The comparison is an important one, given that more companies are choosing to stay private longer — and a record number of them reached the $1 billion “unicorn” valuation mark last year.

Of course, by definition, private companies are less volatile. They don’t trade in the same way as public securities on exchanges where their prices fluctuate in real-time. Instead, committees or outside firms calculate private company valuations based on the performance of public peers and other metrics on a quarterly basis. Valuations can also be plucked from a company’s most recent funding rounds. Many experts argue private companies are just as volatile as public stocks, but the risk is hidden from view.

Still, shares in private companies increasingly change hands on markets like Forge Global and Carta, which then collect and analyze current and historical information. At the same time, with so many companies staying private for longer, a lively market for data has emerged. The result provides one of the fullest picture yet of the financial health of private companies at any given point in time.

In January, stocks fell by 5 to 10 percent, depending on the sector. Although not entirely comparable to those straightforward figures, indications of interest, a non-binding bid or ask, in private companies dropped less than that in January, compared to December, according to Forge Global, which is a trading platform for pre-IPO companies. Forge reported that the average price change based on indications of interest to buy private shares dropped 3.03 percent in January, compared to December. The average price change based on IOIs to sell increased 3.9 percent.

“The price investors are willing to pay for privately held company shares dipped only slightly in January, likely a spillover effect from the tech sell-off in the public markets,” according to Forge Global’s February 2022 private market update.


“In recent months, as volatility hit the public markets, we’ve seen more shareholder activity on the platform as employees and early investors are concerned about extended liquidity timelines. Later stage investors sense buying opportunities because they tend to be more long-term, focused on the next three to five years and not the next three to five Fed meetings,” reported Forge.

As inflation fears picked up last year, Forge saw that mirrored on its own platform. The company said it has seen a steady uptick in seller interest over the last twelve months. “Investor demand has been more steady with a sharp decline and partial correction between late November 2021 and January 2022,” said Forge.

The massive selloffs in tech in the public markets in January did not affect deal values in the primary markets, said Ron Kahn, co-head of the valuations and opinions group at investment bank Lincoln International. None of the deals that Lincoln advised on last month suffered a drop in the purchase price, Kahn told II. In fact, U.S. venture capital investments reached almost $32 billion in January, up slightly from December, according to Forge.

Private market investors seem to be taking inflation a little more in stride. “The inflationary panic felt in public markets is not shared by private business owners,” Kahn said. “Our clients believe that cost pressures will subside, and today’s price increases will be passed on to end customers.” The Lincoln Private Market Index, which measures the enterprise value for more than 3,000 private companies, grew 23.5 percent in 2021, slightly outpacing the 22.5 percent growth of EV in the S&P 500.

ApeVue, another provider of private market price data, found that the 50 leading pre-IPO stocks returned 0.71 percent in January even as the S&P 500 lost 5.3 percent. By analyzing observable private market information from licensed brokers, such as bid and offer data, funding dates, and transaction details, ApeVue is able to price more than 100 private stocks daily, according to founder Nicholas Fusco.

In addition, the company found that some of the leading private companies have often outperformed their public counterparts.

Take Impossible Foods. It was down 5.6 percent in 2021, according to ApeVue data. In comparison, Beyond Meat, a listed company providing similar plant-based meat products, went down 47.9 percent last year.

There is even more divergence between the performance of public and private companies in sectors such as fintech. Last year, PayPal and Block, two public companies providing digital payment services, were down 19.5 percent and 26 percent, respectively. Meanwhile, their unlisted competitor, Stripe, went up 81 percent in 2021, according to ApeVue.

Much of the pain in tech has come from newly public companies, with outsize returns increasingly accruing to private investors.

Forge’s data paints an ugly picture — at least for public company investors.

“In the aggregate over the last six months, companies covered on Forge Intelligence offered strong returns – an average of 60.1 percent – if investors purchased stock at the last private round price,” according to the trading platform. “Investing in the IPO of the same group of companies would have resulted in a 26.5 percent loss by comparison.”