Tracking Public and Private Market Growth - KingsCrowd

June 1, 2022

Tracking Public and Private Market Growth

Retail investors can now easily invest in companies of all kinds. They have access to mature companies through the public stock market and to early stage startups through online startup investing. Across both individual companies and broad markets, there are many metrics that can be used to track and measure performance and investor activity. Market capitalization (market cap) is one of the primary measurements. A market cap is a measure of the value of a company’s outstanding stock, which evolves with investors’ willingness to pay higher or lower prices. The state of the public stock market is mostly represented by the Standard & Poor’s 500 (S&P 500) index.

Retail investors can also invest in startups easily through online platforms. But share exchanges are limited, and the valuation of a company only changes after it has a crowdfunding raise. Because these startups are still privately held, there is no easy way to calculate a market cap for online startup investing. However, looking at the total valuation of all companies raising capital online can provide an approximation that’s similar to a market cap.

Online startup investing is much younger than the public stock markets. We’re still learning how startup investors react during economic struggles. This week, we are comparing the S&P 500’s market cap and total valuations in online startup investing to understand whether the two are following similar trends. Our data shows the quarterly evolution of market caps from January 2020 to March 2022.

The total valuation of companies using online startup investing is growing at a faster rate than the S&P 500’s market cap. The two are not strongly correlated, but they do have similar tendencies. Indeed, both the S&P 500’s market cap and online startup investing’s total valuation increased quickly from January 2020. Growth slowed down at the beginning of 2021 and increased again at the end of the year. And while the S&P 500’s market cap fell at the beginning of 2022, online startup investing’s total valuation grew 4x slower, going from a rate of 47.8% to 10.1%.

The S&P 500’s market cap is determined by the activity of investors. When more investors want to buy than to sell, the price of shares increases (and vice versa). Therefore, a growing market cap indicates that investors are bullish on the economy. The recent downturn in the S&P 500’s market cap is indicative of investors’ concerns about inflation and other economic struggles.

Online startup investing as a market is slightly different. What we measure is the total valuation of all the companies raising online during a single month. These companies’ shares are available to buy for a few months on average, and then the companies close their rounds. The price of their shares isn’t calculated based on investors activity but based on the founders’ revenue projections for their companies. The upward trend we see above with online startup investing is the combination of more companies raising and of higher company valuations as they grow and raise several rounds. An increasing number of deals are available online, and more growth stage companies are offering shares to online investors. While online startup investing is independent of the public market, it still seems slightly affected by trends in the national economy. When investors are willing to take higher investment risks, overvalued startups have higher chances to raise funds. Depending on the US economy’s performance in the coming months, it seems likely that startup valuations will decrease – and become more fair to investors. 

Note: All data on online startup investing used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the crowdfunding market.


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About: Léa Bouhelier-Gautreau

Léa is passionate about impact investing and sustainability. Prior to KingsCrowd, she worked for Stanford’s accelerator, StartX, helping to select the most promising entrepreneurs. She also led the first award-winning study on the Malawian startup ecosystem. In her free-time, she volunteers to help entrepreneurs in Cameroon, Brazil and Colombia. Léa holds a degree in Anthropology from France and is currently enrolled in the UC Davis MBA program.

View Léa Bouhelier-Gautreau's articles

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