2023 in Review

Though the average transaction price ranged from a 30% to 50% discount (vs. last primary funding) for most of 2023, Figure 1 illustrates a significant disparity between the most highly sought after securities and the rest. Top quartile stocks often garnered material premiums to the last primary valuation. 2023’s AI frenzy accounts in part for this trend, with names like OpenAI, Anthropic, Databricks, and others fetching higher and higher prices over the course of the year, as demand outstripped supply. 

Meanwhile, many B2B SaaS companies (which make up the largest share of issuers trading on Hiive) struggled with slow growth or cost cuts from their customers (who themselves consist disproportionately of tech companies and startups). This led to a chasm in pricing between the top quartile and the other 75% of issuers, with the latter averaging greater than 50% discounts over the course of the year. 

Demand stabilized somewhat in the second half of 2023 as interest rate optimism took hold and the IPO window appeared to crack open. Time will tell if this represents the dawn of a new bull market, or a false start for investors.

In stark contrast to their behavior during the market’s euphoric apex in 2021, when VC buyers seemed to bid almost indiscriminately across the spectrum of unicorns, secondary market investors flew to quality in 2023 and became very selective. 

Figure 2 illustrates that the most active securities on the Hiive platform benefitted from narrow bid/ask spreads and dramatically greater liquidity than the rest. Meanwhile the bottom quartile was essentially untradeable, with bid/ask chasms of 61% separating buyers and sellers on average.  

While the flight to quality likely explains most of this disparity, there are other factors that cause differences in liquidity between securities. The most important of these factors is the restrictiveness of the issuer’s policies around secondary trading. When companies don’t allow transfer, investors stop following them, and this damages liquidity (and pricing). Other factors impacting spreads include the number of shareholders (more shareholders means more liquid) and the broad availability of information about company performance (another positive factor).

Figure 3 illustrates the significant growth in securities coverage on the Hiive platform during 2023. It also provides yet more evidence that investor interest is concentrated in about 25% of active companies.

Alongside a flight to quality, and similar to the bid/ask spread data in Figure 2, issuer restrictions partly explain this trend. Buyers, knowing that they were likely to be blocked, begin avoiding these securities altogether, leaving willing sellers stranded.

Direct transfers, which require the issuer’s express approval, account for the overwhelming majority of transactions that closed on Hiive in 2023. Indirect deals, where buyers acquire an economic interest in the company by purchasing a stake in a vehicle holding shares or entering into a contract to receive the economic value of the shares in the future, account for only 11% of closed transactions as shown in Figure 4.

Generally, only the most sophisticated investors execute indirect transactions due to some of the added risks associated with these structures.