At ValueStream, we have a unique view of Venture Capital. While others focus on the opportunity for rapid wealth generation or the disruption of multi-billion dollar industries, we are fascinated by how the market itself functions.
In particular, we’re excited by the emergence of what we term the “private capital market” – a fast-growing private alternative to the traditional public market. Although this market plays by its own set of rules, many concepts from the public markets are becoming increasingly relevant as the space matures.
Consider the public markets trade lifecycle:
Pre-Trade” consists of all the activities leading up to a trade, including idea generation, research, risk modeling, and analytics. “Trade” refers to the actual execution of an investment: establishing a reasonable market price for that security, connecting an investor with a security, and agreeing upon the transaction terms. “Post-Trade” includes all the financial, legal, and regulatory activities that occur after the investment has taken place: the actual exchange of cash for legal ownership, any regulatory reporting that must occur, and ongoing portfolio management (which is arguably an ongoing concern even outside of the trade lifecycle).
Given the size of the public markets, the activities above are undertaken by massive companies that have, for the most part, reached the utility size (e.g., Bloomberg, NYSE, NASDAQ, DTCC). However, transparency regulations in the public markets have pushed more and more activities from the public to private markets, and as these private markets have grown, we’ve seen a steady stream of enter the space to provide more scalable solutions for private investment. These innovative companies are providing the same services explored above, but in a private markets context:
Each of the companies listed above is helping to decrease the cost and complexity of conducting private market transactions. But there is still a long way to go. As the Venture Capital market embraces a wider investor base through crowdfunding, there are many aspects of the trade lifecycle required to make private markets function more like the public ones:
Data – Quantitative information about private companies (users, traction, operational data, financial metrics)
Visualization – Technical analysis of company performance using relevant operational and performance data
Secondary liquidity – The ability for holders of private stock to re-sell their securities
Market makers – Individuals who will offer to buy and sell transactions to bridge the gap when there is not enough liquidity for a trade to occur
Term standardization – Standardized legal terms to ensure investors more readily understand the legal implications of owning one security vs. another
Investor relations – More regular engagement between investors and the day-to-day activities of the companies
Portfolio management – Tools to help investors understand the risk/return profile of their investments across their portfolios
Tax and accounting services – Services to manage the complexities of private market investing and emerging syndicate investors
We’re very excited to watch this market evolve. Expect more from us as the rapid maturation of the private capital markets continues.