The Private Shares Fund – Q3 2021 Webinar Replay

 

CHRISTIAN MUNAFO: Ok well welcome everyone, Thanks for joining us for today’s webinar. I’m Christian Munafo, the Chief Investment Officer of Liberty Street Advisors, which is the investment advisor to the Private Shares Fund. And I am joined by Kevin MOSS, the Managing Director at Liberty Street and also President of the Private Shares Fund.

KEVIN MOSS: Hello and thanks for joining, everyone.

CHRISTIAN MUNAFO: So, we will be using screen-share once again for our presentation today, as we’ve done in the past, so you will not be able to see us. As we’ve also noted in the past, you know, our objective is to try to get in front of our clients every quarter to provide what we believe are the most relevant updates. Since the last time we spoke, we are pleased to report that the fund’s inflows are at record levels, and Kevin will provide more detail on this later on in the presentation. We have also continued investing on behalf of the fund by both increasing existing positions and also adding new names. And Kevin will also touch on this later, as will I, but year to date we’ve already exceeded capital deployment for the last few years combined.

And, finally, the portfolio has continued performing well and we continue to have fairly consistent liquidity activity, which we will also report on in the presentation. So, as always, we welcome suggestions and comments on future topics. We also encourage you to share any questions that you may have today through Zoom. Many of you are probably familiar with Zoom by now, so please use the Q&A box on the bottom of your screens and we will try our best to respond to all the questions at the end of the webinar. If for any reason we don’t make it through all the questions, we’ll be sure to follow up with you afterwards.

So, with that, I’m going to kick it over to Kevin, who’s going to talk us through the agenda for today.

KEVIN MOSS: Thank you, Christian. Yes, to set the agenda for today we will start off with an overview of the fund strategy and key benefits, Christian will then discuss our market perspective, we will then provide a fund update, as we normally do, and finally we will close with our thoughts on where we think the market is heading. As we typically try to do we will take some time to answer a few questions at the end of the webinar.

CHRISTIAN MUNAFO: Great. Thanks, Kevin.

KEVIN MOSS: Yep.

CHRISTIAN MUNAFO: So, since most, if not all, of you by now are familiar with the fund and the strategy, we decided to keep this part of the webinar shorter.  And, quite simply, just to kick things off, we think many of you are familiar with a very pronounced trend that has been growing over the past couple decades. That trend being that the number of publicly traded companies listed on U.S. exchanges has contracted significantly over this time period as private venture-backed and growth-oriented companies continue staying private for longer. As you can see that pretty clearly on this page.

You know, as we’ve discussed in the past, there are three main drivers we think that are contributing to this dynamic of these companies staying private for longer. The first being that regulatory changes continue to make it more challenging, expensive, and in many situations, administratively burdensome for companies to go public. So, there’s often a desire to stay private for longer. So, we’ll touch on some of that later in the presentation.

And, second, a lot of the growth-oriented companies in particular that this fund focuses on, they’re still developing their business models. And so for companies that are growing 50-100% plus a year, while that’s certainly exciting, they may not have figured out all of the operational and financial aspects of managing the business with most efficiency. And if they were to try to figure that out in the public market it could create unnecessary volatility. And so some companies in this area have also decided to just stay private for longer to avoid that unnecessary volatility.

And then perhaps most importantly, there’s just been a significant amount of capital made available to the private markets over the last decade with roughly 6 trillion committed across the private asset class over the last 15 years, and call it a trillion or so into venture and growth stage assets. And so it just provides more runway for these companies to stay private. And there’s also been a surge of what we would call nontraditional investors that continue seeking entry into the private markets as they continue to look for alpha in other areas outside of the public markets.

And so here what we see is that the median duration and equity value of these companies has gone up dramatically over the last 20 years. So, if you think about companies that we’re looking at in this kind of venture-backed space 20 years ago, you’d often see them going public within four years or so from inception and roughly at median, equity values and market caps of about 500 million.

If you look at the current state of affairs based on metrics we have for full year 2020, we see that that four years has increased by threefold to 12 years – in some situations it can actually be much longer than that – and the market caps have grown by nearly eightfold to over 4 billion. And so that’s pretty significant. When we think about companies that we’re familiar with that are public, like Microsoft, and Oracle, and Apple, etc., those companies went public much earlier in the development of their businesses, which means that a lot of the market cap growth that they’ve demonstrated has been available to public market investors.

But when we look at the current state of affairs, a lot of that growth is actually now happening in the private market as they companies stay private for longer.  And since there’s no universal exchange that exists today to buy private company securities easily, like we have with public exchanges, it basically means that it’s extremely difficult to benefit from that private market growth and value appreciation unless you have access to private market strategies. And then, furthermore, the vast majority of venture-backed companies actually never go public. They get acquired. So if you are waiting for them to go public, in many situations a lot of them won’t.

And then as a result of this – so, this protraction of these companies’ life cycles, we now have just seen a massive growth in the number of what are called unicorns, which are private companies that are valued at a billion dollars or more. And so you can see that in the most recent metrics we have toward the end of August, we saw that there were more than 800 of these companies. And, again, it’s a function of the fact largely that these companies are staying private for longer and growing into much larger businesses.

Now, it is important to note that these extended life cycles and holding periods, while it’s good in terms of creating more value for the private market investors, it also creates friction because not all of these investors have the same timelines. And so those are the types of things that sophisticated investors can try to take advantage of by providing the ability for those types of investors who are looking for liquidity to achieve that liquidity, and also providing investors of those strategies to secure, in many situations, attractive entry points to these high-growth businesses.

So, Kevin, I’m going to turn it over to you to talk through the key benefits.

KEVIN MOSS: Thanks again, Christian. Yeah, we touch on the key benefits and fund strategy each webinar. We do try to keep it brief. And this is really for the benefit of new listeners and attendees, so apologize for those who are already very familiar with the fund strategy. In short, the Private Shares Fund is an SEC-registered ’40 Act fund using an interval structure that allows us to really democratize access to these asset class involving late-stage high-growth innovation companies for all investors, which is quite disruptive as private market strategies like this had historically only been available to institutional investors like pension funds, endowments, family offices and high-net worth investors.

So, with the interval structure, we essentially remove the typical accreditation requirements that come with private market products.  But, in addition, the structure of this product allows for up to 5 percent of the fund NAV to be redeemed on a quarterly basis. And this can be a really helpful liquidity management tool of investors. Furthermore, investors can simply invest in the fund with a ticker, and that’s available on most brokerage platforms like TD, Schwab, Fidelity, Pershing – those are the major ones. The fund has been around for a little over seven years and we have a highly experienced team that has been investing in this asset class for several decades in aggregate, and we follow a rigorous institutional-grade investment process.

As of September, we have over 70 companies diversified across numerous sectors that we believe to be attractive prices and late in their development where we expect an exit may occur in two to four years. And this can be via M&A (mergers and acquisitions) or a public offering. When we do have an exit, we reinvest those proceeds back into new opportunities and we are continuously trying to not only increase positions in companies we already own and think highly of, but also further diversify into new companies.

So, back to you, Christian, for the market perspective.

CHRISTIAN MUNAFO: Great. Thanks, Kevin. And obviously we’d been happy to discuss the fund and the strategy at a more granular level offline for those of you who would be interested but, hopefully, that was a helpful and efficient introduction, especially for those of you joining us for the first time. And for those of you who are already familiar, we certainly appreciate your patience. So, why don’t we move on to the current market perspectives.

And so we’ll touch on the following – so, we’ll touch on, you know, a quick update on COVID, the implications of ongoing market volatility and macro uncertainty, we’ll hit on valuations, we’ll hit on the exit environment, pricing opportunities we’re seeing. We’ll also go through some historical reference data.

So, to kick things off, in terms of volatility, I think everyone’s quite aware that the COVID-19 pandemic and the variety of variants that we’re facing continue to be a concern. And it does not appear, unfortunately, that they’re going to be going away any time soon, so it’s just become a matter of how we adjust to deal with it during this period. And while infection rates and hospitalizations have gone up in certain parts of the country, we are encouraged by the increasing vaccination rates, which have substantially reduced the impacts, especially the most severe impacts for peak levels. And I think what we’re seeing is a continued structured reopening of the economy, which is going to provide everyone with overall better visibility on the path forward.

We’ve also continued to see pretty strong earnings reports throughout most of the sectors during the most recent quarter. You know, the multi-trillions of stimulus that had been issued over the past 18 months certainly helped. Profit margins, for the most part, are sitting at record levels. And while interest rates have stabilized during the quarter, this remains a key area of concern, as is the case with increased inflation and whether or not that inflation is transitory.

But what we can see on this slide is that volatility has certainly come down from levels that we saw earlier this year. We do think that active rebalancing continues depending on where investors view the near and long-term value and growth opportunities, but we continue to see strong support for the growth-oriented sectors. And we’ll continue keeping an eye, obviously, on these inflows.

It is important to note that we, in particular, are long-term investors. And so while the macro is always important for us to monitor, the underlying company fundamentals are also extremely important. There continues to be a focus on infrastructure legislation and tax treatment and so we’re certainly keeping an eye on that, as is the market.

While some of these things may create short-term market pain, particularly when we think about the fact we’re sitting overall fairly close to record stock market levels, in some situations where valuations have been arguably stressed, we continue to believe that the high-caliber technology and innovation-driven companies that we look to invest in should continue performing well both in the public and private market. And, if anything, if we see a pickup in volatility involving tech and growth-oriented names, which often has a lag effect, especially if you’re an investor in the private markets, this can actually create attractive entry points for investors looking to get into these assets. So, that’s something that we continue to keep a close eye on.

And, you know, as we’ll show momentarily, investing in U.S. venture-backed companies while they are still private can potentially generate significantly higher returns compared to waiting to access them at what are often much higher valuations in the public market. And so we’ll show you that data which we think makes the case for looking for ways to access this technology innovation while the companies are still private.

So, what does this mean for the area that we focus on, which is essentially late-stage venture and growth-oriented companies? So, COVID has obviously had an impact and it will continue to have an impact. It’s also created some positive tailwinds for the types of innovation that we invest in ranging from telehealth to e-commerce, to cybersecurity, to distance learning and everything in between. But as we reported previously, 2020, as you can see on this slide, set a record for late-stage venture capital investment despite what was a slowdown, quite frankly, during the early part of the year at the onset of COVID-19. And what can also be seen on this slide is that that trend continued into 2021. So, the first half of 2021 has essentially matched the amount of capital deployed in late-stage venture for all of 2020, which is very compelling.

Now, while the magnitude of the investment in late-stage deals has grown dramatically, this segment of the venture market has been growing consistently for the last decade-plus, driven by some things we discussed earlier – companies staying private for longer. There’s also been a bit of a divergence trend where we’ve seen investors allocating away from early-stage companies in some situations and doubling down, if you will, into later-stage deals, which they view as potentially less risky. And there’s also been a desire for investors to concentrate on their perceived winners. So, putting more money into the companies that they’re excited and have high conviction about.

The valuations in this space overall has gotten frothy in some parts, in some pockets, and so we keep a close eye on that. There are also companies that have and will experience some valuation pullbacks in future rounds of financings or exits if they can’t sustain their growth rates or margins. So, a lot of companies benefited from the momentum over the past couple years. Not all of that is justifiable if there’s not underlying sound businesses below them.

But there’s also a substantial amount of capital, as you can see here, that’s looking for access to support high-caliber technology growth and innovation companies which are the assets that we’re really focusing on. And Kevin will touch on some of these details. But for those high-caliber companies, we’re seeing some strong data that these companies continue raising capital at attractive valuations. And so, with that, let’s move on to the exit analysis.

So, the exit analysis, both M&A and IPO activity slowed relative to levels that we saw earlier this year, but they’re still sitting on – if you look at it on an annualized basis – record levels not seen since 2014. So, for companies that we describe as having less robust business models that may be relying upon near-term liquidity, a more challenging environment and macro negative sentiment can certainly have a negative impact on those types of companies. But what we’re seeing overall is that for the higher caliber companies that have stronger operating models, large addressable markets, strong balance sheets, sophisticated investors, we’re seeing very strong support from the market for these companies. And it’s not just M&A events, it’s not just IPOs, it’s also, as we talked about before, direct listings and SPACs – and Special Purpose Acquisition Companies, which we’ll also touch on.

Just to be clear, for this slide, the way the data is reported – so, SPACs are essentially included in the M&A definition since those are essentially mergers at the end of the day. So, there’s been no shortage of these types of offerings, including a number of positions that we have in the portfolio, which Kevin will be hitting on in a few moments.

And then with regards to SPACs, we wanted to give you some updated data on SPACs – so, again, for those not familiar, SPAC stands for Special Purpose Acquisition Company and it’s also sometimes referred to as a blank-check company. And these are essentially shell operations – shell companies with no operations that have gone public with the intention of acquiring or merging with a target company, and utilizing the proceeds from that SPAC shell’s initial public offering to execute upon that opportunity.

And so we witnessed a surge, as many of you know, of SPAC activity last year with over 250 SPACs launched, representing more than 80 billion in companies that went public. They’ve come a long way structurally from what we’ve seen in the past. SPACs have been around for a long time. We’re also seeing more utilization of PIPEs, which stands for Private Investment and Public Equity. So, overall, there has been a lot of innovation in terms of SPACs and they can create a more efficient timely way for companies that are private to establish a public currency, but they’re certainly not perfect.

Net-net, we’re happy for our portfolio companies and for this asset class to have more options for our companies to get liquidity and there continues to be a significant amount of that SPAC activity available. There’s still over 400 SPACs that are actively looking for merger partners, representing over 200 billion of capital. And if you factor in the actual buying power that these SPACs have, as reported by some investment banks, it may be something more like 500 billion to a trillion of buying power. But they’re not perfect. And what we’ve been seeing, as we had expected, in terms of the slowdown after the surge in the first part of this year, is that there’s been increasing regulatory questions and concerns on certain areas including how warrants are being treated withinside of the SPAC structure; how the disclosures are being processed around things like fees; particularly, how the sponsors are getting paid. There are a lot of questions around the activity involving redemptions, and also the utilization of forward-looking statements, which has become particularly concerning for companies that are trying to model their valuations off of forward-looking financials that go out five years, in some situations more than that.

So, we think that there are some valid arguments that the regulators have identified and they’re in the process of sorting out. And as a result of that, we’ve seen a shift in how a number of these SPACs are trading, both at the announcement and post-announcement, with many of them now trading below the $10 per share price.

All of that said, we continue to believe that a lot of these regulatory matters will be sorted out and there is a lot of capital sitting there looking to be deployed in a two-year time period from when the SPACs are launched. So, we do expect to see a resurgence of activity once there is more transparency and comfort around some of these regulatory concerns, and also as we’re seeing improvements and optimizations of the SPAC structure and PIPE structures as well.

So, then the last slide before I kick it over to Kevin, and I referred to this earlier, and many of you probably have seen this by now – but what we essentially did is we wanted to go back and look at an analysis of venture-backed companies and how investors that accessed them while they were still private would’ve performed relative to investors that waited for them to go public.  And so to simplify the analysis, what we did is we essentially went back about 10-11 years and we looked at all of the venture-backed IPOs. And as the base point, we basically established the last private round of financing. So, for every one of those several hundred companies that went public, we used as the basis for the comparison the last private valuation that these companies did.

What we then did is we compared the investors who would’ve entered those companies at the last private round of financing to investors who had accessed them at the IPO price, for those who were able to get access at the IPO price, as well as to those who accessed these companies at the first trade.  And what we can see on this slide clearly where you look at the average for the median statistics is that investors who were able to get into these venture-backed companies that went public over the last decade, they significantly outperformed investors who waited to access them in the public market, whether it was at the IPO price or at the first trade. And that’s both at a six-month and 12-month period post IPO. So, we think that’s pretty compelling data that further underscores the fact that accessing these private companies while they’re still private, before they go public, can be an attractive – a differentiator for underlying performance.

And so, finally, I’m just going to point out that we continue seeing very significant deal flow throughout the overall ecosystem that we focus on. We continue leveraging our origination capabilities. You’re going to see that when Kevin talks about how we’ve been actively investing. But we’re also being disciplined because there are some pockets where there’s some irrational pricing. And so we are not forcing out deployment. We’re being very careful and very disciplined at where we’re investing.

So, overall, very pleased to see how resilient this late-stage venture-backed market continues to be. There’s significant capital being invested and a continuance of strong exit activity.

So, with that, I’m going to turn it over to Kevin, who’s going to start talking to us about a number of fund-level and portfolio-level updates.

KEVIN MOSS: Great. Thanks, again, Christian. Yeah, similar to last quarter, we are very happy with our progress. Again, we’re working off some good momentum from 2020 where we had a positive year in performance, record inflows and, of course, the excitement in the transition to the new advisor. We added 15 companies to the portfolio in 2020 and we continued that momentum into 2021 and up into the third quarter.

So far this year we’ve added 18 new companies to the portfolio, and we’ll have a slide that we’ll show you in a minute on that. We’ve deployed $92.1 million into these companies. We’ve added to 12 existing companies already in the portfolio in an effort to continue to increase existing positions that are performing well. And, to that end, we’ve added $55.9 million of those existing companies. Therefore, we’ve deployed close to $148 million in capital so far this year, which is by far a record year in terms of deployment. And we’ve also had 12 companies where we made some sales in both the private and public space and we generated about $70.4 million in proceeds from those sales.

So, if we move to the next slide, the new companies that we have added so far this year, which is Betterment in the tech sector, we’ve added Collective Health and Crossover Health, both in the digital health space; Invaio, which is the ad-tech sector; Domino Data, Pavilion Data Labs, both big data; Kraken, which is a crypto platform and BlockFi, which is also a crypto sector; Cybereason, which is cyber security; Automation Anywhere, which is artificial intelligence; Lyst; in e-commerce we have Tradeshift, MasterClass and Eruditus, both education technology companies, and Relativity Space, a space company, as well as Beta Technologies. So, you know, a lot of new positions. We’ve been very busy. We continue to build that bench of companies across a variety of sectors and, of course, we hope they will drive returns for years to come.

If we move to the next slide, this slide shows the companies where we continued to add to the existing positions and especially in companies where we believe that their ability to execute continues. Axiom Space is one of those companies, one of our largest companies in the portfolio. Course Hero in the ed-tech space; DarkTrace, which has since gone public; GrubMarket, we participated in their round of financing recently; Tempo, ThoughtSpot, we participated in their tender; NextRoll, WiTricity, Inrix.

We continue to mention one of the major surprises last year was how many financings we saw in our portfolio of companies. And, more importantly, again, the number of financings at higher rounds of valuation.  And that trend has continued into 2021 and we’ve seen 18 of our portfolio companies raise capital this year with 15 of those rounds being at higher valuations and three having flat rounds. We’ve seen no down rounds yet this year.

Here we see some of our companies that have had new rounds of financings, and then the following slide outlines companies that have raised capital with some more detail. I won’t go through each of these companies, but some names to note would be SpaceX, with a large capital raise – a $74 billion valuation, which is in line with the frequency of their capital raises they’ve done in the past, as mentioned on the last webinar.

Some of the more impressive up-rounds would be Blend Labs, Dataminr, Exabeam with rounds increasing over 3X previously round valuations. Since then we’ve seen Checkr double its valuation in its latest round, and Algoli has tripled its valuation in its latest round. We’ve also seen big up-rounds in Cybereason and Eruditus.  This has obviously helped with our returns and we’re hoping to continue to see our companies raise capital and continue to grow their businesses.

This slide gives you a snapshot of our exits year to date in 2021. As you can see, we have been pretty busy with this exit environment in our portfolio. We’ve had five traditional IPOs, including DigitalOcean in March, Darktrace in April. Marqeta had a traditional IPO in June. Blend Labs went public in July and, finally, RobinHood also went public towards the end of July. All of these IPOs so far have been successful IPOs but we’re still in lockup in each of these names except for Darktrace.

In addition to these traditional IPOs, we’ve seen four of our portfolio companies enter the public market via a SPAC merger. These companies include Hims back in January, ChargePoint in March, SoFi in June and 23 this past August. Except for 23andMe, each of these companies are actually out of lockup and free to trade. And as per our normal course of business, we would look to sell off these companies opportunistically over a reasonable period of time once they come off of lockup.

And while it’s not on this slide, we also saw two M&A exits so far this year in Chartboost and Zan, which was previously Inside Sales. So, the M&A exits for us has still been fairly quiet. Some companies, to keep an eye on within our portfolio that had been targeted by SPACs, already filed their S1s, would be Planet Labs, Nextdoor and Toro.

And thank you, Christian, this is a good look at our current portfolio. As previously mentioned, we have over 70 companies in the portfolio and, as you can see, the largest position in the portfolio now is Axiom Space, after we’ve recently participated in one of their fund raises. Marqeta has moved to the second largest position and, as previously mentioned, is now a public company. It is still in lockup for us and that expires in December.

SpaceX falls to our third largest position. We then have GrubMarket, and this is due to their recent round of financing, and we were able to participate in that round as well, so we’re pretty excited about building that position. And then to round out the top five positions, we have Dataminr, and as mentioned in the last webinar, this is due to their round of financing which saw more than a 2X increase in valuation from their previous round.

You may see some companies that are no longer in our portfolio due to our selling positions after they came off of lockup. [EXPIRATION?], ChargePoint, Palantir and Darktrace and PubMatic. Companies that are in our portfolio but, as mentioned earlier, have come off of lockup or will be coming off of lockup in the next two to six months would be Marqeta, SoFi, Hims, DigitalOcean, Blend Labs, RobinHood and 23andMe. So, you can see very busy – and this is really how our portfolio is supposed to look. We build up our positions, let them mature in the portfolio and then we hopefully have a positive exit. And so you will see that the amount of companies really ebb and flow over time as our fund continues to grow.

It happens that right now we’ve had a really nice buildup of companies and we feel fortunate that we’re getting some good exits now, which are really helping drive returns. I’ll touch on returns in a minute. If we move to the next slide, Christian.

This is a good look at the broad exposure our fund has to different sectors. Our largest allocation sits in the fintech space with Marqeta, Blend Labs, Fundbox and RobinHood as some of our larger positions. This is followed by big data, companies like Domino Data, Pavilion Data. And then we have enterprise software with companies like Trax, KeepTruckin, PatientPop, Automation Anywhere. And finally we round out the top four sectors with aerospace, which we’ve been actively investing in lately. And of course we have companies like SpaceX, AxiomSpace, which I mentioned is our largest position, and Relativity Space. But really the point of this slide is we can see here many sectors are represented within our portfolio. And technology today really inserts itself across a broad range of sectors, which make all these companies innovative and disruptive.

If we’re going to move on to performance on this slide, the public market rally has seen some resistance in a recycling of sectors. Technology companies have definitely been facing some headwinds. But we continue into September with some good momentum from last year, where certain companies continue to drive our returns. Companies like PubMatic, DigitalOcean, RobinHood, (indiscernible), Marqeta, just to name a few. As of August 31st, the institutional shares were up 2.11 percent for the month, 42.95 percent in the past year, and 21.36 percent year to date, with the Russell 2000 up 2.24 percent, 47.08% and 15.83%, respectively.

So, we wanted to remind everyone that the important thing to remember here, though, is the volatility of our NAV compared to our benchmark. And in public markets, in general, we’ve shown much more stability in our NAV than the public markets. And given the unprecedented amount of volatility and uncertainty, we’re really happy about that.

So, we’re really happy with these returns and as a point of reference, they’re primarily driven by positive developments in our portfolio companies, upward financing rounds and positive exits that we’ve been seeing. So, we hope you’re pleased as well. So, that wraps up the fund update. Christian, I’ll send it back to you.

CHRISTIAN MUNAFO: Great, thanks, Kevin. That was fantastic. Yeah, so just a few more perspectives regarding the portfolio analysis. So, on this slide what we can see is that the fund has invested in a little over 120 companies since inception. And roughly 40 percent of those have been realized or essentially exited from the portfolio, which we think is quite impressive.

As of August 31st of this year, roughly 50 of the 70 active portfolio companies that remain were added over the last few years. And so if you factor in that we’re typically investing at a point in time that we think is two to four years on average from an exit event, what that tells you is that there should be significant growth potential left in this portfolio given that they’re fairly young in the duration that we expect them to have. When we factor in the growth rates and the continued scale, it’s quite likely that these will continue to grow into much more valuable businesses.  We also have a number of companies that are more than three-years old, some of which we think are well-positioned for liquidity over the next few quarters.

Kevin touched on some of this when he was going through his portfolio analysis. You know, 2020 was certainly behind the prior year, which had previously marked our most active deployment year on record. And, look, the first half of 2020 was quite challenging with COVID. And while we were trying to invest and take advantage of market dislocations, we were also being very disciplined and conservative with cash to protect the fund. What we did see is that towards the end of 2020, we ended very strong with nine new deals in the fourth quarter alone. And we headed into 2021 with that same momentum.

So, Kevin kind of talked you through all the details. But what we can see here is that we’ve – just in 2021 through August, so kind of through August of 2021 – we’ve already exceeded the last several years of capital deployment combined. And we are utilizing some different techniques to help us navigate around increased competition in certain parts of the market. And, as we talked about earlier, there are areas of the market where there is froth. And so there’s a tremendous amount of opportunities that we’re seeing but we’re also being extremely disciplined about focusing on not just what it is that we want to own but also at what prices we want to own these assets at. So, we get attractive risk-adjusted returns for our clients.

And so we’ve been encouraged by the capital inflows, and the increased capital inflows and scale of our assets give us more leverage and negotiating power to secure, in many situations, larger and more attractive opportunities in this asset class. So, we think we’ve been benefitting a lot from both the growth of inflows and also the performance of the fund, and both of those are putting us in better positions to continue building out a high-quality portfolio going forward.

So, in terms of the fund outlook, we clearly continue to actively monitor the existing portfolio. And, as you can see, we’re looking for opportunities to increase our position sizing as the fund continues to grow in size and as we get more conviction in certain holdings, we’re actively looking to build those positions.   Kevin talked you through a number of those examples. As discussed, though, we’re also maintaining discipline because there is definitely some froth in this market and so we’re always seeking price dislocations where we can, and we’re working very closely with the venture capital managers, active investors in the asset class and the underlying portfolio companies themselves to find opportunity for us where we can be helpful. So, we continue to be very aggressive with our various origination tactics.

And then it’s really important, as you’ve heard from us in the past, that we gain visibility to how the companies are operating, what the balance sheets look like, how much money are they burning, how can they mitigate that burn, if necessary, is there enough capital around the table if you look at investors to protect these companies if we were to experience a potential down cycle?  And so we really spend a lot of time, both quantitative and qualitatively, doing our homework before we decide to enter these positions.

And, look, we’re keenly aware of the current macro events that we talked about earlier which can present a variety of challenges, particularly if there’s increased volatility. That can impact both valuations and also the exit market. But I think we’ve been able to demonstrate historically, and particularly over the last 24 months, which was a challenging period, that we’ve been building a very high caliber portfolio that is well-positioned to perform well in all types of market conditions.  And so – and if there is any type of a macro event that’s negative, we’re certainly going to take advantage of that with the cash we have to buy into dislocated positions in strong companies.

And so, with that, Kevin, I’m going to kick it back over to you to see if there is anything to add before we go on to questions.

KEVIN MOSS: Thanks, Christian. I would just simply add – again, to reiterate, we’re very happy about the fund’s performance, we’re happy about the exciting exit environment that we find ourselves in for the past two years, and let’s just see if that continues into the fourth quarter.

And I think, as you pointed out, we’ve deployed more capital this year really than the last five years combined. So, that really points to the kind of opportunities we have as we’ve been able to scale this fund. So, we remain very optimistic about the future.

CHRISTIAN MUNAFO: Pretty. Thanks, Kevin. So, that concludes the main portion of our webinar presentation today. But we do have some time left remaining to take some questions. It looks like some have already been submitted, so let’s go ahead and start going through that list.

Okay, so it looks like there’s a question with regards to SPACs. There are a couple of questions on SPACs. There are a lot of questions here, so we’ll probably have to follow up with a number of you separately, just in the interest of time. But let me take this one question. “So, how has the SPAC market affected your universe of opportunity?”

So, we touched on a number of SPAC metrics earlier, so I won’t go there. But there continues to be significant buying power, but activity has clearly slowed as regulators are spending more time here. At the simplest level, we would think of SPACs in two ways: For our existing portfolio holdings, it provides another liquidity path which we believe is a net positive. Again, SPACs are not perfect but having more options for our companies to exit is certainly additive. For new investment deployment, there is a competitive element for late-stage investors because SPACs, particularly during the peak of activity we saw last year and earlier this year, they’ve taken some companies public sooner, which can make it more difficult obviously to access them privately. And in these situations we’ve also seen PIPEs serving as a proxy to some extent for what would’ve been typically a private pre-IPO financing.

To be clear, there’s no shortage of late-stage deal flow, which you can probably tell by how much capital continues flowing into the private market to finance the growth of these companies, and we’re actually looking at a number of PIPEs as potential investment opportunities.

And I would just add that most of the companies that we’re talking to that maybe nine months ago were very much thinking they were going to SPAC, over the last four to six months, there’s been a very notable shift where we’re hearing from the portfolio companies directly that a lot of them are deciding to simply raise more private financing and stay private longer because they just have concerns about volatility in the public market and also just concerns about how SPACs are being perceived. So, I hope that was helpful.

There’s a question with regards to sourcing and the opportunity set. Kevin, do you want to touch on that?

KEVIN MOSS: Sure, I can touch on that. Thanks, Christian. Yes, sourcing deals – there are many ways that we actually source our transactions, and it’s actually evolved significantly over the years. When we first launched the fund, we primarily sourced deals from platforms such as SharesPost and Forge in secondary transactions, primarily because of the size of our AUM (assets under management) at the time. That’s really the only thing we could do.

However, as the fund has evolved over the years and we’ve scaled assets, we have a lot of channels available to us that we can source deals from such as bankers like the Goldmans, J.P. Morgans, Guggenheims of the world that are raising capital for companies; financial advisors, such as yourselves, that have clients that are private companies that are looking for liquidity; our VC (venture capital) partners that we co-invest with or they have pro rata allocations that they can’t fill themselves – well, they look to us in many cases to help them with those types of opportunities.

But I think, most importantly, from the companies themselves through tenor programs that they have for their employees, as well as primary rounds of financing when they’re raising capital. We now get a lot of invitations to participate in these primary rounds of financings.

And I saw, Christian, another question about the NASDAQ private market and what that means to us. That’s actually a very positive thing for us. They formed – they’ve been around for a while but they primarily did tenor programs for companies. Now they’re partnering with a lot of the big banks – Goldman Sachs, Morgan Stanley – and it’s really a broker-dealer platform that’s going to be a very positive thing for funds like ourselves that are looking for inventory. And so that’s a positive development for us.

CHRISTIAN MUNAFO: Great. Thanks, Kevin. Again, there are a lot of questions. In the interest of time here, we’ll take a couple more. There are some questions about what sectors we’re spending most of our time on and ones that we think are frothy. You know, it’s a bit challenging to single out a few because we’re spending so much time across the private innovation economy. I’d say the few that we’re spending more time on, you know, on a relative basis probably are cybersecurity. There’s obviously no shortage of breaches and vulnerabilities there, so that’s a really exciting area where we’re seeing some high-growth businesses.

Digital health was another very exciting and massive market opportunity. I mean, we saw over the last 18 months how important it is for innovation here throughout the whole entire healthcare system. Agricultural technology and food technology and the underlying kind of agricultural supply chain – we’re seeing really exciting technology innovation and platforms that are enabling regenerative agricultural processes improve utilization of farmland, crop protection and yield optimization, etc. So, that’s an area that we’re spending a lot of time on.

And fintech, obviously, impacting everything from how we personally manage our day to day financing and purchasing, all the way to how we invest. And then the space economy is an area that we believe is really in its infancy. It has a long way to go and there are certainly risks there. But there’s also, we believe, significant upside, and so that’s another area.

There are pockets of froth throughout the entire market, to be honest with you. Some areas of traditional enterprise software and these highly visible recurring revenue-type models. We’re seeing multiples there go up. We’re seeing multiples up in the public market in things like cybersecurity where you have companies like Sentinel One and CrowdStrike at 50-times forward revenue numbers. And so we’re able to get those in the private market for much more attractive entry points.

But there is froth in the private market as well as the public market. We’re really focusing on high-caliber businesses that are very unique and distinct, that have diversified customer basis, high-growth metrics and strong investor syndicates that are going to continue supporting them through all different cycles.

So, Kevin, there’s another question overall, I think, if I put some of them together, that touch on potential portfolio liquidity before the end of the year. Did you want to just try to touch on that at a high level?

KEVIN MOSS: Yeah. We kind of mentioned a little bit when we were giving the fund update, but just to reiterate, we will have – we’ve had a lot of liquidity opportunities this year given the exits we’ve had and we’ll continue to do that. Right now we have public companies that are in lockup, Blend Labs is in lockup. It doesn’t come off, though, until January so we won’t see any opportunities there. But Marqeta comes off in December, 23andMe comes off in December, DigitalOcean is actually coming off as we speak, RobinHood comes off of lockup in December as well.

So, these are companies that are in the portfolio where we’ll have liquidity opportunities. That doesn’t necessarily mean we’re going to sell anything. It really depends on the exit environment at the time and where the stock is trading. But, as we’ve said in the past, once a company comes off of lockup, we will look to exit that position efficiently and emotionlessly over a period of time.

And then we can’t forget we have other companies in the portfolio, like Nextdoor, Planet Labs, Circle that are being targeted by SPACs. They have not de-SPACked as of yet. But when they do, they will also be in a lockup period. Mostly likely these are companies to look forward to, to get a liquidity event in 2022.

CHRISTIAN MUNAFO: Thanks, Kevin. Yeah, so, unfortunately, we have to leave it there. Again, we’re very grateful for everyone’s participation and questions. We will be sure to get back to each and every one of you that asked a question that we were not able to get to. We just want to be respectful of everyone’s time so you can get back to your day.

We hope this webinar was helpful. It will be made available for – to listen again. So, it’s been recorded and there’ll be replay available. We can’t thank you enough again for your continued support. As you can tell, we’re very excited about the opportunity. We’ve never been this excited about it and the fund’s never been in a better position. So, we’re grateful for your support. And, Kevin, I’ll kick it over to you to sign off.

KEVIN MOSS: Yeah, thanks, Christian. As usual, I want to thank all of our shareholders again for their support. We set out almost eight years ago to democratize access to late-stage venture-backed private companies and we’ve been seeing much success over the last few years as a result of our efforts. We could not have done that without our shareholders who’ve been with us for many years, as well as those who’ve recently joined us.

So, thank you very much and we’ve never felt more optimistic. Thanks, everybody.