American unicorns: When primary rounds are distant, secondary markets provide clarity

Epic Games, Chime Bank, Databricks, and SpaceX are four of the most well-known US startups in recent years, all of which have gone from small beginnings to wide renown. But like all venture capital-backed startups, their valuations have changed quite infrequently over their lifetimes, only being adjusted upon new funding rounds, which can be anywhere from a few months to more than 18 months apart. Even then, data for private companies like this is hard to come by, and difficult to evaluate.

What are the factors that are taken into account for these exorbitant valuations, and how would an investor that is not on the capitalization table or without access to company financials be able to understand how these valuations are decided upon?

Independent pricing and benchmarks for private markets will be increasingly important as more institutional investors seek alternative assets, according to a study by Cerulli Associates, a Boston-based research and consulting firm. The study found that more than 70% of institutional investors said they will increase or maintain their allocations to alternatives in the next five years.

But the study also found that a majority of institutional investors are not satisfied with the pricing and benchmarks currently available for private markets assets.

In this exercise, we look at ApeVue’s composite daily stock price for each of the four above-mentioned US companies, multiplied by the firm’s shares outstanding (including any stock splits) to create an implied valuation on a daily basis dating back to December 31, 2020.

Looking at SpaceX, the rocket and space exploration company founded by Elon Musk in the early 2000s, we incorporate the last primary round raised prior to 2021. On August 18, 2020, SpaceX had most recently raised $2 billion at a post-money valuation of $64 billion. Looking at ApeVue’s pricing, the ApeVue implied valuation of SpaceX at this time, with a share price of $33.22 (historically accounting for stock splits), was $58.5 billion.

ApeVue’s data allows for investors to understand where SpaceX was and is currently trading in the secondary market. In turn, this allows for an implied valuation of the company to be reached, which is otherwise not possible due to information not being available between primary rounds. As of September 30, 2022, ApeVue’s implied valuation of SpaceX is now at $129 billion, with the most recent round valuing the company at $125 billion in June 2022.

We followed this same methodology for Stripe, Databricks and Epic Games.

For Stripe, ApeVue’s implied valuation of about $100 billion based off of share price was much higher than the previous primary round, where Stripe raised $600 million at an approximate $36 billion valuation. ApeVue data shows the valuation came down to $85 billion, but jumped back up again to $100 billion at the next and most recent round, where Stripe had a post-money valuation of about $94.4 billion.

Tracking the secondary market showed investors willing to pay nearly $95 per share to invest in a portion of the private payments company in the month following, which saw its implied valuation rocket to a high of $225 billion. While it has been some time since the last primary funding round in March 2021, ApeVue now see’s Stripe valued at around $78 billion.

In October 2019, Databricks had raised $1.6 billion in a Series F at a $6.2 billion post-money valuation. Using that as a baseline, the data showed the February 2021 Series G at an implied valuation of $26.8 billion, with the round announced at at $28 billion valuation. Continuing this, ApeVue’s implied valuation for Databricks’ Series H in August 2021 was $37.8 billion, compared to the company’s announced round valuation at $38 billion.

Epic Games: