3SPOKE

Congratulations to Mike Xu and the team at GrubMarket Inc. on the continued success and the Series G fundraise, lifting the company valuation by more than 50% over the previous round in November 2022. 3SPOKE is excited to join other investors in supporting Grubmarket, which was named to the CNBC’s annual #Disruptor50 (2023 and 2024), with its continued revenue growth, AI tech innovation in food distribution and strong leadership. #foodtech #AI #innovation https://lnkd.in/e3UpakSK

Against the 2024 secondary market backdrop of record-breaking deal volume ($152B), the Lazard Secondary Market Report offers a considerable deep dive and interesting insights. Alternative structures were increasingly common in 2024 as LPs utilized preferred equity, managed funds and SPV affiliate transfers in lieu of direct LP sales. Preferred equity transactions represented ~7% of total secondary market volume and enabled LPs to preserve their upside return while locking in immediate liquidity. The report outlines that average pricing has improved with the strongest increase in Growth (up by 5.0%) but notable is that VC remains in the mid 50% to mid 60% range, up roughly 3 – 4%. https://lnkd.in/ggPiScyv

"Armies prepare to fight their last war, rather than their next war" reminds us of how some investors approach investing. Many are still avoiding venture due to ‘20/’21 distorted valuations. As noted in the recent PM Insights report “the days of sky-high valuations that blessed late-stage private share sellers in 2021 are over, 2024 was the year of the sustained rebound in private company valuations.” In 2024, the PM50 Growth Index returned a notable 28%, driven overall by AI, Financial and Data sectors. Large, recognizable venture names continue to attract 2024 secondary market attention with revenue multiples moving much higher, for example; SpaceX (54x), Anthropic (45x), Databricks (27x) and Anduril (20x). Investors may be well served to look at the continued venture opportunity vs. waiting for the dust to settle. https://lnkd.in/e5s2tEBW

After significant valuation discounts from 2020/2021 reference levels combined with an overall lack of transactional interest in venture assets, secondary volume for venture and growth equity increased in the first half of 2024. This was the first improvement in a couple years as valuations began to stabilize, as noted in the Campbell Lutyens H1 2024 report. Notably, volumes for LP-led venture and growth funds grew by 135% over H1 2023, up by nearly $2bn. Renewed interest in venture and growth assets has notably shifted the secondary pricing for these funds. The report outlines an increase over the first half of last year by 17%, bringing the average transaction pricing discount to roughly 31%. https://lnkd.in/eRH7BGP9

Finally had a chance to read the white paper “Demystifying Company Led Secondaries” recently published by Bryan, Garnier & Co with thanks to Ramsey Daunch. Great coverage of the venture landscape and highlights the range of motivations across stakeholders for liquidity solutions. As noted, “Stifled exits are creating a liquidity strain” both in Europe and the US. The focus on profitability was notable as all European IPOs (>€200M) in the first half of 2024 have been EBITDA positive. The broad reduction in exit volumes continues to cascade across employees and investors, deferring expected liquidity and motivating everyone to evaluate options for an adequate and relevant solution. https://lnkd.in/edr8Hkta

Excellent research piece from Emily M. Zheng and PitchBook covering the ongoing liquidity drought from the lack of VC exit activity. The result is an expectation for the lowest number of VC-backed IPOs since 2016 and the lowest annual fundraising since 2019. 3SPOKE’s use of Structured/Preferred Equity Solutions may be the answer to bridge the gap between secondary sales and NAV Loans (which have gained little traction in the VC ecosystem). Demand for this structured approach is increasing from individuals, as well as LPs and GPs, given its flexibility to generate current cash and participate in future growth of their assets. At the same time, investors are finding the strategy attractive to access notable venture exposure but in a more risk-adjusted manner with a more attractive cash flow profile. #secondaries #DPI #venturecapital https://lnkd.in/g6gKHHiD

Huge congratulations to 3SPOKE portfolio company Lendio which entered a collaboration to integrate its technology with global financial technology company FIS. Since the start of its operations in 2011, Lendio has been focusing on aiding small businesses in accessing capital with suitable lenders. The collaboration will introduce Lendio’s new SMB Digital Lending solution and support small businesses in accessing funding. The new solution aims to simplify and automate the lending processes for financial institutions in a space that has historically been inefficient and under resourced. #smallbusinesslending #innovation https://lnkd.in/gPr49drx

With a moribund IPO market over the past two years, the pipeline continues to build as companies and the investors backing them have been forced to wait out the downturn.?This has put the need and / or desire for liquidity front and center through different secondary approaches. Many of those companies may continue waiting as the IPO market starts to turn. As Tomasz Tunguz outlines, the revenue at IPO has doubled, with the median revenue of $90m in 2017 to $189m today. This could leave a large number of businesses seeking alternative liquidity solutions until they can reach the new ‘critical mass’. https://lnkd.in/es3Puqka Much Revenue Must a Company Generate to IPO?

Our favorite meme creator (Trace Cohen) recently posted “It’s crazy to see LPs want DPI/liquidity from emerging managers for funds 1 or 2 so early…”. Reminded 3SPOKE of a Bloomberg article (link in first comment) from February with the takeaway “DPI is the new IRR.” Trace makes a fair point that a LP really should not expect significant liquidity in year four or six from a traditional private equity fund but the lack of current distributions is forcing the issue. Funds raised in the 2019 – 2022 period are well behind prior years in terms of Distributions to Paid-in capital (“DPI”) by as much as two-thirds. Easy to understand why secondaries broadly are so busy. #liquidity #DPI #emergingmanagers https://lnkd.in/emzJ8fTF

Commitments to secondaries continues growing with a buyer’s market with deal flow well in excess of dedicated capital. “LPs commit to secondaries funds because they see that this is a materially undercapitalised market,” says Jan Philipp Schmitz, executive vice-president at Ardian. Blackstone and Lexington Partners, each raised over $20 billion as the industry focuses on buying high-quality assets at compelling discounts.? For 3SPOKE it begs the question, if “high-quality” (i.e. largely buyout) assets is undercapitalized, then what does it look like for venture capital. The biggest factor seems to be investors’ valuation hangover concerns from the 2020/2021 period keeping them on the sidelines. https://lnkd.in/eZnEnFqV