Tracking the marketwide performance of US private companies and startups is difficult. Private companies, unlike their public counterparts, are not required to disclose performance or valuation information to the public. Analysts and industry experts have relied on fragmented information and anecdotal evidence to track private market trends.
Carta helps private companies, public companies, investors, and employees manage equity. Specifically, Carta manages hundreds of billions in equity value and thousands of cap tables and valuations. We have anonymized and aggregated data about the value of equity managed on our platform, which can provide insights into the private market as a whole.
To help the industry track performance, we built the Carta 100 Index, launching today. The Carta 100 Index tracks the performance of the most valuable private companies on the Carta platform over time.1 We believe the Carta 100 Index provides the most thorough measurement of US private companies' performance, and we hope this index provides new insights on the funding environment for private companies.
In this post, we will outline the methodology our data team used to build the Carta 100 Index.
Setting the Index’s initial conditions
The Carta 100 Index starts on June 30, 2017, with an initial value of 100. Changes in company valuations are indexed against this date to track changes over time. As an example, a 1% change on July 1, 2017 would lead to an Index value of 101. If the Index increased an additional 1% on July 2nd, the index would rise to 102.01.
Calculating the value of a private company
Choosing the first 100 companies
We initially selected the 100 most valuable companies on Carta for the Carta 100 Index, making sure they met certain criteria described later in this post. To determine the most valuable companies to include, we calculated the post-money valuation of qualifying companies after their last fundraising round. Post-money valuation is calculated by multiplying the number of fully-diluted shares by the share class price per share of the last fundraising round. For example, a company with 1,000,000 fully diluted shares that last raised at $5.00 per share in a Series B financing would have a post-money valuation of $5,000,000 (1,000,000 x $5.00).
Calculating changes in value
To calculate changes in value, we use a slightly different method. Growing venture-backed companies generally raise financings rounds every 12-24 months, and valuations change dramatically between these rounds. To calculate changes in value, we look at two key metrics: common stock strike price and preferred stock price.2
The price of common stock is set by a 409A valuation. 409A valuations determine fair market value and are necessary for tax compliance reasons. While the common stock price is rarely used by investors, the changes in value closely match the performance of a company.
In addition to looking at changes in the value of common stock, we also look at the changes in preferred stock. We used the preferred price per share most recently paid. When looking at changes in preferred stock we use the preferred price per share of the most recent share class from the most recent round. To determine the post money valuation for the round we do so on an as-converted basis. If the preferred stock is worth $10, with a conversion ratio of 2, and there are 1,000 shares, the post-money valuation would be $10 ÷ 2 x 1,000 = $5,000.
But looking at common and preferred stock price has its challenges. Specifically, movements in common and preferred stock can happen independently, and companies’ capitalization structures differ. To control for these situations, we developed a weighting system. We weight common stock and preferred stock prices based on a company’s capitalization structure. If a company’s equity capitalization consists of 25% preferred shares, then 25% of the weighted value comes from the funding price.
How companies qualify for the Carta 100 Index
To qualify for the Carta 100 Index, a company must meet the following the requirements:
- C Corporation or Public Benefit Company: The company must be legally structured as a C corporation or Public Benefit Company (PBC).
- Private company: Even though Carta helps both public and private companies manage equity, only private companies are eligible for inclusion in the Index.
- Securities in USD: To control for exchange rate fluctuations, which might bias a company’s relative valuation, we only include companies whose securities are issued and transacted in USD.
- US-based: We only include companies based in the United States in our sample.
- Carta Customer: We only include Carta customers that are fully onboarded with data that has been verified by a company’s legal administrator and is not subject to legal and/or contractual restrictions.
- Active companies: We only add companies to the Index that have raised funding within the past 2 years.
We refresh the Index quarterly. On the first day of each quarter, eligible companies with the highest post-money valuations will replace current Index companies.
To ensure the Index always has 100 companies, we remove companies immediately if they dissolve, declare bankruptcy, have an M&A event, or go public. If a company has an M&A event and ceases to operate independently, due to the frequent lack of availability of M&A transaction details, we assume that there is no change in the company value and it is replaced. Corporate transactions such as a stock split, which do not change the total value of a company, do not change the Index value.
Early observations from tracking the Carta 100 Index
Observations are from 6/30/17 to 8/13/18
- Average post-money valuation: $850M
- Median post-money value: $500M
- Average number of value changes per company per year: 3.965
- 39 companies from the initial Index on 6/30/2017 are still in the index, 61 have moved out of the Index
Visit the Carta 100 Index.
Special thanks to Elijah Wilson
1 Companies who have contractually requested we not use their data in anonymized and aggregated studies are not included in the Carta 100.
2 While we use these two metrics to determine changes in value once companies are in the Index, we do not use common stock price to determine which companies are included—we only use preferred stock price.
This communication is on behalf of eShares, Inc., d/b/a Carta, Inc. ("Carta"). The analysis described herein was compiled using anonymized data. The analysis did not utilize any data prohibited by contract and/or applicable law. This communication is not to be construed as legal, financial, investment, or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.