Weird Pricing of Private Securities
buy the rumor, sell the news
I received an email entreaty this morning from Forge Global, shilling me various securities of privately held technology companies. There’s nothing untoward about this; I registered on their site, and I am interested in the market for private securities of technology startups.
However. There is something interesting about this list of securities that one can buy through Forge’s platform:
Convoy. Offered at $13.00 per share, relative to the company’s most recent round at $13.54 at a ~$3B valuation. (Nov 2019)
Circle. Offered at $.86 per share, relative to the company’s most recent round at $16.23 per share at a ~$3 billion valuation (May 2018). The company then raised another $25M in July 2020 at an undisclosed valuation.
DigitalOcean. Offered at $27.00 per share, relative to the company’s most recent round at $10.59 per share at a ~$1.1B valuation (May 2020)
Honor. Offered at $1.93 per share, relative to the company’s most recent round at $2.41 per share at an undisclosed valuation. (Oct 2020)
Rubrik. Offered at $25.26 per share, relative to the company’s most recent round at $25.33 per share at a ~$3.3B valuation. (Jan 2019)
(This bulleted list is copied, verbatim, from the email sent to me from Forge, with some minor formatting changes.)
If you’re scratching your head at this point, wondering why I’m writing a post about private company secondary offerings, take a look at the offering for DigitalOcean and compare it to the others. The offering, at $27, is more than 2X its most recent priced round, from about six months ago, at $10.59. Is the company really growing at a rate sufficiently high to warrant a more than 2X bump in its valuation? I know that many web developers love DigitalOcean’s products—and that’s great for the company and its customers. But love of a product doesn’t necessarily imply a set of discounted future cash flows sufficient to warrant more than a 2X valuation in only six months.
Elsewhere around the web
Economist Scott Sumner explains why conspiracy theories appear to be on the rise:
Psychologists describe a certain type of relatively unbiased person as “WEIRD”, which doesn’t mean strange, it means people from areas that are Western, Educated, Industrialized, Rich and Democratic.” But even in those countries, only a modest share of people are actually WEIRD. This category more often applies to moral values, for instance those people who think nepotism is wrong, that it’s wrong to be biased in favor of those you know and like. But WEIRD also overlaps with a non-biased epistemic style that is often called “rational.”
…
The internet changed everything. More specifically, it democratized information sharing all over the world. There are no more “gatekeepers.” Because lesst han 10% of the world’s population is truly WEIRD, the internet has made conspiracy theories the dominant epistemic style of the 21st century. Just as the 21st century will be a low interest rate/high asset price century (as I predicted years ago), it will also be a century of widespread conspiracy theories. I doubt whether I’ll live along [sic] enough to see another president who is generally accepted as legitimate.
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Housekeeping update
You may have noticed a flurry of new posts, after a hiatus of more than a month. I am getting back into the swing of posting this newsletter regularly, so be on the lookout for more frequent, albeit often shorter, posts from me.