Private markets saw a sharp slowdown in secondary trading as bid-ask spreads widened in the face of macro uncertainties. Ticket volume grew through 2022, suggesting that buyer and seller interest was not the principal factor constraining trading volumes. Instead, ZX’s average bid-ask spread tripled from January to August as investors quickly adjusted bid pricing to reflect public equities multiples but sellers were largely unwilling to break on pricing expectations anchored to 2020 and 2021 primary financings. These trends started to reverse in Q4, with the average bid-ask spread narrowing more than 30% from the August highs as seller pricing expectations fell more in line with buyer sentiment.
Zanbato’s equal-weighted index tracks secondary market performance of ZX’s most actively traded companies, providing additional insight into the divergence and subsequent convergence of private secondary pricing to public comps. Consistent with the bid-ask spread data above, private markets were slow to react to falling public markets through the first half of the year. However, pricing quickly converged with public comps thereafter, closing the year down 60%. Notably, the 60% drop reflected performance closer in line with an index of recent IPOs than broader tech markets.
In 2022, certain investors started to differentiate their internal marks on common vs. preferred stock holdings, marking late stage preferred positions on average 10% higher than common stock positions. This suggests institutional investors are increasingly probability-weighting downside exit scenarios in which late stage preferred stock could potentially accrue a significantly higher payout than common stock.
Heat Map of ZX Index Value YoY change
The heat map above depicts the annual secondary market performance of the 50 most actively traded private companies as tracked by their ZX Index Values. While performance varied widely across these companies, the average 50% decline reflected the broad-based weakness seen through private markets in the back half of the year. Notably, these declines in secondary market pricing were in most cases much steeper than the price declines relative to companies’ last rounds of financing, as seen below in the table comparing each company’s ZX Index Value at the end of 2022 to the price of its most recent financing. This was due to secondary markets routinely trading at premiums to last round pricing in 2021, as significant demand from oversubscribed financings frequently spilled into secondary markets. In normalized market environments the opposite is typically true, with secondaries trading at discounts to last round pricing.
In addition, we continue to see a significant variance between institutional fund marks and secondary market prices. The dollar-weighted average mark differs from the ZX Index Value by more than 5% for about 90% of the 50 most actively traded private companies on ZX. We expect this discrepancy to narrow going into 2023, as more funds and valuation agents look to incorporate secondary prices in their valuation process.
|Companies||DEC’22||LR Pricing||Chg vs. LR|
|Farmers Business Network||$36.98||$62.16||-40.51%|
|Companies||DEC’22||Latest mark||Chg vs. mark|
|Farmers Business Network||$36.98||$52.01||-28.90%|
To learn more about ZXData, the leading market data provider on private companies, reach us at email@example.com
This report is provided for informational purposes only and does not constitute a recommendation or solicitation to buy or sell any financial instrument or to participate in any trading strategy and should not be construed as such. The values shown in this report are not indicative price quotations. This report does not constitute investment advice, nor does this report constitute a "research report" as defined by FINRA Rule 2241 or a "debt research report" as defined by FINRA Rule 2242.
The ZXData and the information contained in this report, some of which have been obtained from third-party sources, are provided on an "as is" basis and the user of this information assumes the entire risk of any use made of this information. Neither Zanbato Inc. (“Zanbato”) nor its affiliates guarantee the accuracy or completeness of the data contained in this report, or its computation and compilation.
The ZXData and this report constitute Zanbato’s valuable intellectual property. You are expressly prohibited from copying, modifying, transmitting or redistributing the ZXData or this report without Zanbato’s prior written consent.
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Updated February 20, 2021
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Section 1 - SCOPE AND SITE STRUCTURE
1.1 Structure & Links
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Section 2 - INDEMNIFICATION
Section 3 - DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY
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Section 4 - TERMINATION
Section 5 - REPRESENTATIONS AND WARRANTIES.
5.1 Representations and Warranties.
5.1.2 Representations, Warranties and Agreements. You represent and warrant to, and agree with The Zanbato Group (which representations, warranties and agreements shall be deemed repeated each time you access or use the Service), that:
(i) You are in compliance with all applicable laws in all material respects;
(ii) all information provided by you in writing to The Zanbato Group (including all information contained in applications, questionnaires and information forms, and including information delivered via electronic means) is true and accurate in all material respects;
(iv) you have all Intellectual Property Rights (as defined in the Rulebook) in and to any information submitted by you to the Service, and your use of any software or equipment to access the Service (other than software or equipment provided by The Zanbato Group) does not violate any third party's Intellectual Property Rights;
(vi) If you are a customer of The Zanbato Group, alone or together with your Authorized Customer Delegee, you possess the sophistication, experience, knowledge and expertise in financial and business matters to make your own investment decisions and to properly assess the merits, risks and suitability of investing in, and entering into transactions on the Service;
(vii) If you are a customer of The Zanbato Group, alone or together with your Authorized Customer Delegee, you are (x) capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities and (y) will exercise independent judgment in evaluating the merits of all potential transactions;
(viii) you acknowledge, agree and understand that (x) all transactions entered into on the Service are unsolicited transactions, (y) no such transaction will be solicited or recommended by The Zanbato Group and (z) your decision to enter into any transaction on the Service will be based on your own research and information, or on research and information obtained from a source other than the Service or The Zanbato Group, and neither The Zanbato Group nor any of its representatives will have any input into your decision to enter into such transaction;
(ix) If you are a customer of The Zanbato Group, you are and will continue to be either (x) a qualified institutional buyer under Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"), (y) a qualified purchaser, as defined in Section 2(a)(51) of the Investment Company Act, or (z) an accredited investor under Rule 501 of Regulation D of the Securities Act, subject to the right of The Zanbato Group to impose higher accreditation standards to comply with suitability requirements;
(x) you shall comply with all applicable laws related to anti-money laundering and sanctions and (y) if you are a Customer of The Zanbato Group, you shall ensure that you and your Authorized Customer Delegees follow such applicable laws with respect to your and their use of and access to the Service.
5.1.3 Role of The Zanbato Group. You acknowledge and agree that, notwithstanding anything to the contrary herein:
(i) The Zanbato Group shall not, directly or indirectly, be a principal to any transaction on the Service or be responsible for, or otherwise guarantee, performance of any transaction entered into by you, and you shall proceed solely against the counterparty in that transaction, and not against The Zanbato Group, to collect or recover any amounts owed to you or to enforce any of its rights in connection with, or as a result of, such transaction;
(iii) The Zanbato Group may receive fees from subscribers to the Service representing both the buyer and seller in respect of a transaction effected through the Service; and
(iv) if you are a customer of The Zanbato Group, the submission or posting of any Information to or on the Service by The Zanbato Group or any authorized user of the Service shall not be deemed a recommendation by The Zanbato Group or such authorized user that you enter into any particular transaction or that any particular transaction is suitable or appropriate for you.
Section 6 - DIGITAL MILLENNIUM COPYRIGHT ACT
If you believe that the Service contains content that infringes on your copyright, please forward the following information by email to email@example.com or send it to The Zanbato Group, Copyright Agent, Attention: General Counsel, 715 N Shoreline Blvd., Mountain View, CA 94043.
• Your address, telephone number, and email address;
• A description of the copyrighted work that you claim has been infringed;
• A description of where the alleged infringing material is located;
• A statement by you that you have a good faith belief that the disputed use is not authorized by you, the copyright owner, its agent, or the law;
• An electronic or physical signature of the person authorized to act on behalf of the owner of the copyright interest; and
• A statement by you, made under penalty of perjury, that the above information in your notice is accurate and that you are the copyright owner or authorized to act on the copyright owner's behalf.
Our policy is to terminate the right of repeat infringers to use the Service.
Section 7 - NONDISCLOSURE
You agree to use reasonable care, but in no event no less than the same degree of care that you use to protect your own confidential and proprietary information of similar importance, and to prevent the unauthorized use, disclosure, publication or dissemination of proprietary, non-public, confidential information ("Confidential Information") of any Third Party Provider. You agree to accept any Third Party Provider's Confidential Information for the sole purpose of evaluation in connection with your business discussions with The Zanbato Group. You agree not to disclose or use Confidential Information otherwise for your own or any third party's benefit without the prior written approval of an authorized representative of The Zanbato Group in each instance. You may disclose Confidential Information if required by any judicial or governmental request, requirement or order; provided that you first take, if permitted to do so by the judicial or governmental authority with jurisdiction, reasonable steps to give the Third Party Provider sufficient prior notice in order to contest such request, requirement or order by notifying the Third Party Provider of such request. You may only disclose Confidential Information to your employees or agents with a need to know for the sole purpose of evaluation in connection with your business discussions with The Zanbato Group and, in the case of agents, only to the extent that the agent has signed a non-disclosure and non-circumvention agreement at least as restrictive as this Agreement. Information will not be deemed Confidential Information of an Third Party Provider that (i) is already in your possession prior to disclosure by such Third Party Provider, (ii) that is or becomes generally available in the public domain other than as a result of unauthorized disclosure by you or your employees or agents, or (iii) is acquired by a third party not in violation of an obligation of secrecy to such Third Party Provider.
Section 8 - MISCELLANEOUS
8.1 Bids, Offers and Firm Orders. "Bids" and “Offers" on the Service represent non-binding indications of interest submitted by The Zanbato Group or one of its respective authorized registered representatives on behalf of their clients (unless such bids/offers are noted as “firm”). A “firm” bid or offer (each, a “Firm Order”) obligates the customer of The Zanbato Group submitting the Firm Order to pay commissions or banking fees on introduction of a counter-party accepting the terms of their Firm Order, meaning these orders represent a higher level of commitment to transact. Bid and Offers may be for any class of equity security of an issuer and may be for blocks of shares held, exercisable, or held or to be held in special purpose vehicles. Rights of holders of the securities will vary, and transactions may be subject to transfer restrictions, including a right of first refusal by the issuer or others. Some issuers may restrict transfers in their securities to certain classes of investor. Specific information on a given ticket is available from The Zanbato Group market operators through its Z-Chat function.
8.4.1 This Agreement contains a pre-dispute arbitration clause. By signing this Agreement, Seller agrees as follows:
8.4.2 No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein.