Sim Desai’s Post

Proud of our lean but incredibly mean product team for pulling this one off. We’ve always claimed to have the most “real” private market data for late-stage venture-backed companies. We believe we can make this claim because we generate our price charts and order books automatically and in real-time from actual customer orders and agreed transactions on our platform. No second-hand information. No manual intervention into the data. No smoke and mirrors. Well, now we’re doubling down on this claim by bringing even greater transparency into the market with our new charting technology. The new charts provide all kinds of insights we did not previously share, including the change in price over specific periods, a simplified price line that can be further broken down by share type and transaction structure, and an indication of the supply/demand balance at any given time by displaying all historical bids and asks for a security. Being able to make cool releases like this is one of the big advantages of being a nimble startup navigating a competitive field of deep-pocketed but slow-moving giants. What new chart features do you think we should launch next?? #liquidity #privatemarket #preipo #analytics #AI #chips #charting

Had a great chat with Erin Griffith as she was getting this story together. She was intensely curious about the rapidly growing volume in private markets for startup stock. The article is a quick primer on the evolution of this explosive and, until recently, very secretive and opaque market. Covers the evolution of the pre-IPO market from the Facebook days, all the way up to the latest rollercoaster frenzy around Destiny (D/XYZ), and the role that marketplaces like Hiive are playing as alternative access point for the broader investment community. Ultimately, this story leads to many more questions: Should average retail investors have some form of access to this currently exclusive asset class? Are listed, closed-ended funds like DXYZ the right way for retail investors to access this market, or does its extreme volatility and apparently irrational price action pose a risk to those investors? Can market forces work out these problems as more supply comes to market via DXYZ and other closed-ended funds? Do unlisted open-ended funds like ARK Investment Management LLC's Ark Venture Fund which enable retail investors to buy-in at NAV instead of a floating public market price, albeit with significantly less liquidity, hold the key? Or, should regulators look at enabling other alternative options for small two-legged investors? #preipo #privatemarket #liquidity #unicorns

Bravo Daniel Eberhard for making your employees' stock option compensation actually worth something to them! #liquidity

This is an email I received from a founding partner at one of the top 10 VC funds in the world about two years ago shortly after we launched Hiive. I had reached out to tell him about our new business. Even at that time, his response struck me as bizarre. What investor is against liquidity? Isn't it good to have the option to sell? Isn't a liquid investment less risky than an illiquid one? Why was he not even willing to talk about it? But the craziest part was that his firm, through a different partner, had previously sold one investment through ME on a secondary basis, and had actively marketed another! Either he was not aware of the other sales (unlikely) or assumed I was not aware of them. What explains this hypocrisy? Why would he (or his firm) on the one hand use the secondary market when it suited him, but then publicly denounce it? Two words: access and control. The top VC funds in the world take in the lion's share of investor funds and have access to the best opportunities. Their privileged position, coupled with the illiquidity of the asset class, enables them to generate outsized returns AND charge massive fees and carry on their funds. Most of the top VC funds take 20-30% of fund profits in the form of "carried interest" before paying out investors. If the asset class got more liquid and accessible, then investors would not have to pay these massive fees for access. The top VC funds also sit on the boards of private companies. This puts them in the position to control the secondary market for the stock of these companies, and use it for their own purposes (such as buying the stock at advantageous prices because nobody else is allowed). The more restrictive the company, the more control that these board members have over the market. This is not only against the interest of employees, but it's also against the interest of the OTHER investors in the company who do not sit on the board (and therefore are beholden to the board's whims). Well, I've got news for you, top VCs. We are coming for you. #liquidity #democratization #secondarymarket #stockoptions #marketplace

Rubrik is a phenomenal example of the value of the secondary market for companies preparing to go public. The below chart shows the price trend for Rubrik stock in the private market (on Hiive) over the last almost two years leading up to its IPO. Our experience was that the company had a relatively permissive policy around transfers and enabled employees to sell relatively freely so long as the buyer was reputable. As the market infused liquidity into the stock prior to the IPO, the stock price experienced a gradual uptrend. The significant jump in the stock's price in late March corresponded to the announcement that the company was ready to go public. The last private trade at $36.50 took place after the firm IPO plan was announced. Traditionally we expect companies going public to have a massive pop the day they go public, sometimes as much as 50% or even 100%. It appears that Rubrik was careful to price their IPO at a price that would result in some pop, thereby rewarding those investors who bought into the IPO. Meanwhile they priced it high enough so as not to leave too much money on the table. Here, the secondary market served a great price discovery function, allowing Rubrik to 'smartly' price their IPO. Not too high, not too low. I believe this could evolve as a critical best practice for venture backed companies on the path to a public listing. #preipo #liquidity #secondarymarket #rubrikipo #pricediscovery

Some unicorns and late-stage VC-backed companies restrict their employees from selling their stock, often at the request of their boards of directors. Not this one. Andrew Feldman and his executive team at Cerebras Systems (a high-flying AI chip startup mounting a challenge to the likes of NVIDIA and Groq) have been willing to recognize the blood, sweat and tears that employees with vested options have put into building this impressive business, by allowing them to sell their shares in the private market. This is not just great news for current and former Cerebras employees but also for the company and its investors! Why? Liquidity typically leads to higher stock pricing, making it more attractive to investors. How so? The short answer is that when a stock is more liquid, its riskiness declines. When risk goes down, so does the discount rate (the cost of capital) that investors use to price the asset. When the discount rate goes down, all else equal, the price should go up! This enhanced liquidity and pricing can help a company with fundraising valuations, consolidating the cap table before an IPO, and bridging the valuation gap between an illiquid private market and a very liquid public market. Congratulations to Andrew and the Cerebras team for delivering on your promise to your employees and investors by allowing a liquid market for your stock. And bravo to your board members (which, according to PitchBook include Eric Vishria of Benchmark , Brad Gerstner of Altimeter, Steve Vassallo of Foundation Capital, Lior Susan of Eclipse, Thomas Laffont of Coatue, and Pierre Lamond) for supporting your vision! #secondarymarket #privatemarket #marketplace #unicorns #stockoptions

What is one important difference between a startup targeting a professional services market, and almost all other types of technology startups (AI, SAAS, crypto, payments, etc)? I believe the answer lies in the below chart. Though the chart only shows two years of history, since April 2021 our headcount has gone from 1 (Sarah Huggins, when even I was full-time on another job) to 70 today. We did not plan it this way. We were not trying to build an empire. In fact, if you had told me then that we would have 70 people today, I would NOT have believed you. But we realized early on that with all the deeply entrenched networks, relationships, and traditional ways of doing things, we would need PEOPLE to transition the market from the old way to the new way. Simply building 'it' (our platform) would not ensure that 'they' (our customers) would come. We had to talk to them, work with them, and help them see the potential. And so here we are, 70 of us. And we are just getting started. If we are going to make this happen, we need even more (great) people who share our vision and excitement about the future possibilities in private capital markets.

In a stunning development in the Destiny (D/XYZ) drama, the company has filed a shelf prospectus to sell up to $1 billion worth of shares at an undetermined price. Sohail Prasad is either a madman or a genius (or both). The announcement was after trading hours yesterday and the stock is now down in the low $30's from yesterday's close of $43.50. Massive move down, but according to the shelf prospectus, the NAV per share is $4.84. The stock is still trading around seven times NAV after this news. Can Destiny capitalize on small retail investors' apparently insatiable demand for pre-IPO stocks and actually raise a massive amount of cash at these share price levels? Alternatively, if they sell shares well below the current share price, won't the stock immediately adjust down to the price of the raise, thereby wiping out hundreds of millions for those who invested in recent weeks?

I caught up with Lu Wang of Bloomberg News who was intensely curious about the stunning disparity between the valuation of Destiny (D/XYZ) (even after its recent precipitous drops) and the price at which the underlying private companies are trading on private marketplaces. As Lu points out in her article (link in comments), one of the biggest drivers of this is the substantial barriers to getting into private stock marketplaces. You need to be an accredited investor and meet the minimum transaction size (US $25,000 on Hiive for a single company investment) in order to get direct or pure-play exposure to names like Stripe, Anthropic, SpaceX, Discord, and Epic Games. But the other fascinating datapoint she mentions, which I did not know, is this: "Since the late 1990s, American stock markets have suffered a population implosion, with the number of listed firms falling nearly 50% to around 4,000 today." If the number of public stocks has indeed been shrinking at such a rate, it's no wonder that the meme stock frenzy remains in full force and large-cap growth stocks are near all-time highs in spite of the highest rate environment in 16 years. Cash-rich retail investors are desperate for investable assets! Public vehicles investing in private assets could well be the solution to solving the barrier to retail access into the private market. However, more vehicles with larger pools of underlying assets are needed in order to rationalize pricing. Until then, Destiny's market cap at 8x the stated value of its holdings, seems more driven by the scarcity of the underlying assets than their fundamental value.