In this episode of William Blair Thinking Presents, Tony Frascotti, head of private shares trading at William Blair, discusses the latest trends, challenges, and opportunities in the private shares market, delving into the impact of macroeconomic factors, the influence of AI on investment strategies, and the resurgence of the crypto market. Tony also provides insights into the current state of late-stage investments, the role of data in driving market decisions, and the evolving landscape of private shares trading.
Podcast Transcript
00:22
Chris
Hey, everybody. Today is March 7th, 2025. Welcome back to the William Blair Thinking Presents. Today we're doing something a little different. We've invited Tony Frascotti to join us. He's William Blair's head of private shares trading, which, is a team that facilitates transactions in privately held securities with a focus on shares of venture backed companies.
Last time I interviewed Tony, was actually for an August article titled ‘Private Shares Trading Sees Barbell Effect, Late Stage and AI Ventures in High Demand. Again, this is back in August, so things have changed quite a bit since then. And I thought it was it was worth a new conversation with him around the key trends and challenges driving the market right now. So Tony, welcome.
01:02
Tony
Thanks, Chris. It's great to be here. Appreciate you having me.
01:04
Chris
Yeah, absolutely. Let's dive right in. So Tony, compared to last year, what has changed in the private shares trading market and what are you seeing now? And again, I'm going to preface this with, you know, things are changing day by day. So, obviously, something that happened today may be different tomorrow, but as of today, what are you seeing?
01:21
Tony
Yeah, I think it's. It's actually kind of pertinent that we are recording this right in the wake of Powells comments. And I think that, you know, his big takeaway was they are waiting for sort of greater clarity on Trump's policies before making their next move on rates. And I think that a lot of private market investors are in the same boat.
We have seen, you know, some typical crowding in a lot of these ultra late stage names that have raised pretty meaningful primaries or done meaningful tender offers in the last, you know, 3 to 6 months. And that pretty similar from last year.
People are looking for places where they can deploy capital. And while we're still in a big rerating period for a lot of these 2021 vintage names we're seeing a lot of inflows into those names that have raised these big funding rounds.
So I think that those really late stage ones tend to continue to be a big recipient of, capital inflows, but we definitely are still in a rerating period for a lot of the 21 vintage names. And I think that for more regularity to come into the market and greater buyer dispersion to sort of take place, which was a trend that we definitely saw in January and February, and it's taken a bit of a beat recently, just given sort of the market uncertainty, we'll probably need some greater clarity on what the next sort of 6 to 12 months looks like. I think the big change between sort of now when we spoke in August is that it does appear that we will have some IPOs in the short to medium term, and those IPOs should be a bit of a bellwether for some of these late-stage privates.
We saw a vertical SAAS company go public last year that was very well received by the market that we actively traded. And our hope is that the companies that do choose to go public in the next 3 to 6 months will do so in a way that is conservative and allows for upside for people that choose to participate.
I think that if we see some of these companies try to be more aspirational than conservative, it could continue to, just embed greater uncertainty into what the right valuation should be for some of these assets. But we really need to have sort of, market clearing valuations and greater stability in a lot of these assets that took money in 2021 because virtually all of them have rerated, and some of them have been more aggressive in rerating and allowing for greater liquidity for their shareholders.
But the recent exits that we have on the horizon will be sort of an important determining factor for the health of the market. On a go forward basis.
03:52
Chris
Can you talk a little bit about how, you know, maybe data is influencing the market?
03:57
Tony
Sure. Yeah. I think that we're still seeing a lot of money go into these big AI plays and data plays. Obviously, everything is driven by data today. So we're seeing a lot of focus on, on AI and I think that the data landscape is, is changing daily. And, those companies that that are at the forefront continue to, bring in more dollars.
04:20
Chris
Ok. What about the crypto market?
04:22
Tony
We've seen, pretty healthy resurgence in the crypto market in general. There is a wide array of assets that are privately held crypto names, and certainly not all of them have been the recipient of this big run up in Bitcoin that we've seen in the last 12 months. But some of them definitely have been and that's been an area where we've seen increasing investment.
Again, those companies, that we've seen people investing into have been the ones that have either allowed for a rerating or the crypto market has grown enough that they've grown into some of these valuations. So, the infrastructure plays are definitely still up for debate in a lot of places, but we're seeing things like the exchanges that are clearly tied to market volume in the crypto markets catch a pretty healthy bid.
So I think that, you know, if Bitcoin in general continues to outperform as an asset, obviously it's a rocky one. But on the balance, we should see that sector continue to get some lift.
05:21
Chris
Okay. Got it.
Let's talk a bit about the macroeconomic environment. What are the key factors driving these new trends would do you say.
05:30
Tony
So I think that the single most important factor, for private secondaries will be more regularity in equity capital markets in general and having more exits. And again, we have a few that are poised to take place in sort of the next 3 to 6 months. And their performance will be pretty important. You know, the S&P has definitely whipped around in the past couple of weeks. And I think that stability there is also important because at the end of the day, most investors need to comp these privates towards sort of their public comps and without some sort of, you know, comp regularity, it becomes tough for people to buy illiquid assets. So I think just general macroeconomic stability would obviously be a favorable thing.
We've seen a lot of funding flow towards these defense tech companies as well. So from a geopolitical environment, more uncertainty there might not actually be the worst thing for some of these defense tech companies, although, you know, we certainly would not want to wish for that in general. It could be a nice way to play some of these markets.
But I think just return to capital markets activity will be the most important thing.
06:40
Chris
So how does this all affect the private market, especially in terms of venture capital?
06:44
Tony
Yeah. So, I mean, when you think of all these things in relation to 2021, 2021 was, you know, by far and away the most active year for VC fundraising ever. And we saw, a tremendous amount of these funds raise flagship's, fund twos and threes, after, you know, they had this really favorable fundraising environment.
And I think that for, you know, a lot of VCs, trying to raise new vintages, fundraising is really tough.
And it's not surprising because they haven't had as much of a chance to deploy, given just sort of the lack of primary paper out there outside of some of these mega funding rounds.
So, fundraising remains difficult for all but some of the top tier VCs. And I think that is actually a positive for our market, because when people have a difficult time fundraising, one of the first things they're investors are going to look for is DPI, distributions paid in capital. And because the exit environment is not really regular right now, we're still sort of in the early days of a return to tech IPOs.
One of the ways that people will look for distributions is through our market. And when we can provide liquidity to some of these venture funds that have had a tough time fundraising, it becomes a really nice way for them to demonstrate to their LPs that they can still provide distributions, even in the lack of a regular exit environment.
08:01
Chris
All right. So we talked about this last August and wondering if this has shifted at all. But what are the trends in private share policies? Are companies becoming more flexible?
08:11
Tony
I would say it's really tough to blanket, because all of the companies that we trade or at different stages in their life cycle. There may be some companies, that have witnessed meteoric growth in the last sort of 18 to 24 months, for whatever reason. And when they did their series A and B rounds, they might have been like a $20 million or a company. Now they're looking at $200 million a year. And I think that with a lot of those companies, the management teams are definitely ascribing value to allowing for secondary market liquidity creates a lot of great things for them. It puts more patient capital on their capital table. It allows them to retain employees because they have a flexible policy to allow them to reach for liquidity.
And it just gives them a more realistic mark for what institutional investors are paying in the market.
For some of these things, there has been a shift towards more stratified liquidity programs by way of tender offers. That usually tends to trend towards the later stage companies. And again, it all sort of flows back towards the IPO environment.
So, some of the companies that would have been ready to go public in 2021 now might want a little bit more regularized performance with this focus on profitability. And they might not be ready to go yet, but they still have investors and employees that have been waiting for liquidity for a really long time. So we have seen some of these later stage ones, focus more on internal liquidity programs and tender offers to offer for liquidity. I would say in general companies are more amenable to some form of secondary liquidity because they frankly just need to be.
09:42
Chris
Okay. Well, Tony, this has been great. Before we wrap up, though, is there anything else you'd like to add about the current market trends?
09:48
Tony
I would just say that, you know, our market typically lags the public markets. So generally, in periods of high market volatility and public company earnings, we will see things start to rerate. And I think that we're probably in a bit of that rerating period right now.
As people look at the companies that might be poised for exit in 2025 or 2026, they're looking for, you know, a, a market clearing level that makes sense with the public comps.
But I think the reality is that we will probably see some exits in the next 12 to 24 months, and the buyer profiles that are participating in this market are starting to reflect that. We're just having more diverse buyers in the market. So, I think it's probably worthwhile to at least think about the market, because by the time the equity capital markets rerates and we start getting back towards a more regular exit environment, it'll probably be much more saturated.
So, the people that are willing to participate now, will probably be able to build, you know, some meaningful stakes and companies that could do really well in the public markets.
10:51
Chris
All right, Tony, I appreciate your time. This has been really great.
10:53
Tony
Thank you, really appreciate it.
10:54
Chris
For those interested in getting in touch with Tony and his private shares trading team, reach out to us at WilliamBlair.com/Contact-Us. Thank you for taking the time to be with us today.