AI, Crypto Fueling Transformation of Secondaries Market

Like public markets, which appear to have been propelled by expectations of AI-driven productivity gains for tech giants, the private markets appear to have been buoyed by the rapidly rising prospects of names like Groq, Anthropic, Cerebras Systems, Lightmatter, Coreweave, and OpenAI, and many others, which have surged as much as 300% in the last 1-2 years.

Unlike public markets, however, which have gained as much as 80% since bottoming around January of 2023 (1), the pre-IPO market overall has been quite tepid. AI-driven gains have been more than offset by weakness across most of the rest of the late-stage venture asset class, resulting in just slightly more than a 10% increase in the Hiive50 Index (an equal-weight price index of the 50 most liquid securities on Hiive)* from its October 2023 lows at the end of Q3 2024. Though many Series C and later startups have begun to stabilize or climb gradually higher, they continue to trade at an average discount of 40% to 45% off their post-COVID highs.

The high rate context continues to be a headwind for cash-strapped startups as VCs pull back to preserve cash themselves in a tough fundraising environment. While this environment poses significant challenges for the ecosystem, lower valuations could also present an opportunity for investors who are willing to accept the risk of entering the market today. If inflation continues to moderate and rates fall commensurately, then prospects for early-stage companies could improve significantly, and valuations could rise. 

We are hopeful that our trading technologies will help to bridge the gap between private companies seeking better access to capital and investors seeking better access to opportunity as the pre-IPO market enters this new cycle. Evidence of rapidly rising activity on our platform gives us signals that this is indeed happening, and we are optimistic that this trend will continue in the quarters ahead.

Liquidity is Rising in the Secondary Market

Over the first three quarters of 2024, we have seen several indicators on the Hiive platform that support a clear takeaway: pre-IPO stock is trading more freely. Indicators of activity, such as orders placed on platform and completed transactions, have been accelerating across a broad range of securities. 

Overall Secondary Market Breadth is Gradually Increasing

Employees and early-stage funds are decreasingly waiting for natural exits, as these traditional liquidity events have become less frequent, with companies staying private for longer.  We’re seeing this trend reflected directly in the Hiive marketplace data. Since the beginning of the year, the range of pre-IPO companies listed on Hiive has grown across both the investor and shareholder sides of the marketplace. 95 companies have been newly traded on Hiive in the first 9 months of 2024. On the demand side, the number of companies with buy orders has increased 38% from 362 to 498. On the supply side, the number of companies with sell orders has grown even faster, at 54%, from 760 to 1,176. 

Bid/Ask Spread is Narrowing

The delta between bid price and ask price on Hiive, as a percent discount to the latest implied primary investment valuation, has decreased from 14.1% at the beginning of 2024 to 7.1% at the end of Q3. Bids reflect a shrinking discount, and this may be an indication of  increasing liquidity. When the bid/ask spread narrows, more buyers and sellers match on the platform, resulting in higher liquidity and transaction volumes.

A Gap Persists Between Private and Public Markets 

Even as secondary liquidity increases, there is a growing delta between the pre-IPO market and public stocks. This disparity is potentially driven by a high interest rate environment and the resulting capital scarcity for speculative businesses that don’t have comparable (or comparatively transparent) revenues and profitability. While the private market has made some progress in 2024, wider change is needed to close this systemic gap. 

The Q4 edition of the Hiive50 Shows Strong Performance Among AI, High-Tech Hardware, and Crypto Secondaries

Q4 Hiive 50 AI New Joiners

• xAI: Led by Elon Musk, xAI has emerged as a major large language model competitor for Anthropic and OpenAI.

• Scale AI: As AI applications proliferate, Scale AI's infrastructure solutions for providing complete, accurately labeled datasets have become increasingly relevant.

• Dataminr: Dataminr's real-time information discovery platform has been adopted by organizations seeking to stay ahead of emerging trends, risks, and opportunities. 

• CoreWeave: CoreWeave's specialized cloud infrastructure, optimized for GPU-intensive workloads, has become a solution for companies in the AI, machine learning, and entertainment sectors.

Separated into key industry segments, including AI, High-Tech Hardware, Web3/Crypto, FinTech, SaaS, and Consumer, we can see for the first time a sector-level barometer for the direction and momentum of the pre-IPO market on the platform, as shown in the two charts below.

The AI Secondaries Segment Continues to Drive Increases in Implied Value

The AI segment was the top performer in the Hiive50, leading the index in Q3 performance and with a 42% increase in the price index over the first three quarters of 2024. This momentum mirrors the overall dominance of AI investment within the startup ecosystem, where AI deals represented 37% of all Q3 2024 venture fundraising (2).

While OpenAI, Anthropic, and Cerebras Systems continued to pace the AI segment as repeat top performers, the sector also included the largest number of new joiners to the Hiive50, further underscoring the AI industry’s prominence within the overall secondaries market.

AI and High-Tech Hardware IPO Case Study: Cerebras Systems

The High-Tech Hardware Secondaries Segment Has Been the Strongest Performing Sector YTD

Based on data from the Hiive platform, high-tech hardware emerged as the top-performing sector in the Hiive50, with a remarkable 55% price index gain over the first three quarters of 2024. This growth may be influenced by the public markets as industry leader NVIDIA gained 140% over the same period (6). Besides top performers Cerebras Systems (see above) and SambaNova Systems, the industry was also represented in the Hiive50 by Q4 new joiner Loft Orbital, a company whose innovative approach to satellite infrastructure has the potential to democratize access to space-based services. 

Web3 Segment Also Outperformed the Overall Hiive 50 Index Year-to-Date

Based on data generated from the Hiive platform, The Web3/Crypto segment has been the third-highest performing price index within the Hiive50, gaining 13.3% over the first three quarters of 2024. In addition to repeat high performers Consensys and Chainalysis from the previous quarter, Animoca Brands, a leading player in the blockchain gaming and NFT space, joined the Hiive50 in Q4. Overall, the segment has been growing in favor in the current environment, perhaps driven partly by regulatory reforms, plus the store-of-value potential of Bitcoin and similar assets.  

Concluding Thoughts

The pre-IPO market appears to be undergoing a transformation, with increasing liquidity in the secondary market, as observed on the Hiive platform, and a growing number of private companies reportedly embracing secondaries as a viable liquidity option. Hiive’s platform is well-positioned to facilitate this shift, connecting the shareholders in private companies seeking capital with investors seeking opportunities. We are very encouraged by the significant growth in platform activity over the first three quarters of 2024, including a 94% increase in accepted bids, a 76% increase in institutional users, and a 100% increase in active listings. This momentum appears to be driven by a broader market trend towards increased liquidity, indicated by narrowing bid/ask spreads, as observed on the platform. Moreover, the strong performance of AI, high-tech hardware, and crypto secondaries on the platform further underscores the growing appeal of this asset class. Continuing the strong momentum as we approach 2025, we are optimistic about the future of the secondary market and our role in connecting capital and opportunity.

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