June 17, 2020 | Webinar

SharesPost 100 Fund Q2 Update and Outlook

Christian Munafo 00:03

Welcome everyone. And thanks for joining us for today's webinar, I'm Christian Munafo, the Chief Investment Officer at SP investments management or SPIM. The advisor through the SP 100 fund, and I'm joined by Kevin Moss, the Chief Operating Officer at SPIM.

Kevin Moss 00:19

Good morning, everybody.

Christian 00:25

Due to ongoing travel restrictions, and health precautions we’re unfortunately not going to be able to be on screen today. Since Kevin and I are dialing in from separate locations, we’re going to be using a screen share feature through this application. So, you won't be able to see us, but you'll be able to see, the content, which is clearly more important. As noted in the past, our objective of these webinars is to try to get in front of you every quarter to provide what we believe are the most relevant updates.

Since the last time we spoke back in mid-March, which now appears to be, near the bottom of the, the COVID-19 pandemic, and what we can call public market correction, they're having continue to be developments around various health, economic market, social, and politically driven activity which we'll certainly touch on today.

As many of you, we hope can attest Kevin and I have tried to make ourselves available to the best of our ability through a combination of virtual meetings and calls alike during this period of increased volatility and uncertainty, because we know that many of you have questions and we will continue doing so.

That said, we do hope you find this, this webinar format and the content there in to be, to be helpful and informative. So again, it's easy for us to pull the topics together for this webinar of the second quarter, as it was back in March for the first quarter, given the amount of developments that I mentioned earlier but we really would like to get feedback from all of you with regards to certain areas of interest that you may like for us to cover in future webinars. So please keep that engagement coming and share thoughts. so, we look forward to receiving them. Kevin?

Kevin 02:41

Yeah. Great. So, I'll as usual outline today's agenda and then I'll hand it back to you Chris quickly for some housekeeping items. But what we're going to cover today is a quick corporate update cause we've had some exciting news that we recently announced I'll then hand it over to Christian for a market perspective then I'll come back to me for a fund update and then Christian will continue with the fund update as well as a, a fund outlook. And of course, at the end we will answer any questions you might have, anything that we can't get to today, as we have done in the past, we'll follow up the email or directly by phone.

Christian 03:32

Great, thanks Kevin. just real quick in terms of, of technical matters as you can see on the screen here, and some of you are very familiar with this. If you happen to be experiencing sound or video issues today, I would always recommend that you try to refresh your browser. There are some nails at the bottom of your screen that can be used to minimize or reopen the different webcast sources including the presentation.

And if you'd like to ask a question at any point please feel free to use the Q&A box on your console. We will be having, as we always do a Q&A session at the end of the presentation, we do tend to have limited time for that in some situations. And so, if we do not get to all of the questions today, we will certainly follow up with each of you afterwards and we have in the past. so, with that, Kevin, why don't I turn it back over to you to start with the corporate update?

Christian 04:34

Sounds good. So great. We'll go through this part fairly quickly. Some of you may heard, but we're really excited about the fact that on May 12th, we announced the merger of sheriffs post and forge and pending regulatory approval. This brings together the two largest private securities market places in the world. So really we're really excited about this and the synergy these two companies will have under one roof.

We really think this puts a spotlight on the private security space and how much it has grown over the past 10 years, and for the fund and for other participates in the private security space and really provides an even bigger platform to source some of our deal flow front. So, we, we're very excited about this. After the close of this transaction, the advisor SP investment management and the other subsidiaries will continue to operate under a separate holding company. So, we will not be part of this transaction and really it will be business as usual for us here at the Sharespost [inaudible 00:05:39].

So please be sure to ask any questions at the end of the presentation on this, or if you have further questions, if we don't get to them, as Christian mentioned we will follow up directly with you via email or by the phone. So with that said, Christian, I'll hand it over to you for market updates.

Christian 05:58

Great. Thanks, Kevin. sure. So certainly, no shortage of, of topics for us to touch on today. But you know, the, the intent is to try to do our best in a condensed period of time, to talk about the current market conditions, the market volatility and how this is impacting. And we expect little impact in the future the late stage private companies from a valuation standpoint, from an operational standpoint, and also in terms of the exit environment.

Exit environment refers to market factors that influence a company’s prospects for an IPO, merger or acquisition.

So due to a combination of the global health and economic concerns that have stemmed from the COVID-19 pandemic combined with a collapse in oil prices, what is a resurgence of China oriented trade tension, and ongoing political concerns many forms regarding the upcoming US presidential election in social matters alike. We, we've been witnessing more than normal volatility you know, as we reported back in March which was, as I mentioned earlier, the peak of the volatility index during this most recent cycle, there's really been significant volatility and corrections during the peak of this in the March and April time period.

And so, on this volatility index you'll see how it searched back during that March timeframe. And this has led to unfortunately a number of disappointing events, including obviously unprecedented furloughs and layoffs, not just within the US obviously, but also globally. And unfortunately within the US we did see the US treasury department and the federal reserve quite rapidly inject several trillion dollars into the markets through what was essentially a combination of stimulus packages and loan programs to help cushion the economic impact of this COVID-19 pandemic, which again has forced business closures, travel restrictions, furloughs, and layoffs that are impacting both small and large companies and not just public companies, also private companies that's set to varying degrees.

You know, we'll talk about some of the varying degrees. and around the world and certainly for the US particularly in certain parts of the country, like the Northeast, March and April were very challenging months, all right, people in businesses try to adapt to what became a new normal. While republic markets experienced sizable declines, as many of know across the board, the most vulnerable sector is included areas like transportation, lodging, entertainment, advertising, restaurants, retail, conversely the more innovative than technology enabled sectors such as business continuity, big data, cybersecurity, e-commerce tech enabled delivery services, supply chain optimization, technology capabilities and of course, digital health has performed considerably better as did the technology oriented indices like the NASDAQ.

As we kind move into May. And so, the middle of the second quarter we started to see as many of you know, signs of cautious optimism emerging around the COVID-19 mitigation efforts. And there's been some promising, although it's still early indications for treatments and accelerated vaccine development plans, as well as an indication that the treasury instead swift and significant action was working to stabilize markets. And for anyone that continues following the fed and, and the treasury, and they continue to express significant sentiment around ongoing support to stabilize the environment. And if you look at the queue and earnings, you know overall considering the economic factors, I think many took away the fact that things were not as bad as they expected.

Again, certain sectors were hit harder than others. But it seems that many folks underestimated the impact of injecting trillions of dollars of stimulus into the system. And, and we also saw in May a growing consensus that the gradual reopening of the economy was expected perhaps to initiate sooner than originally anticipated. Parallel with that we've seen a significant contraction in volatility. And so, if you look at the volatility you getting on this slide, you saw things really start to slow down coming up into June. Now within the last several days volatility is, has come back to some extent, nowhere near where we saw it in March. You know, we reached the mid-twenties relative to the CBO volatility index the last week. You know, we're backed up into the low to mid-thirties right now, but what we are well below peak levels we saw in March, which is a good sign.

And, and in parallel with that we've also seen you know, a very strong resurgence in the, in the markets, in the public markets. We have the NASDAQ essentially trading near its all-time high the SP or Dow, or in somewhere in the range of ten-ish percent below their pre COVID-19 levels, and the Russell somewhere in that 15% range. So again, we've got a strong and swift recovery and you know, investors have been focused it seems on the large tech names, the mega caps, and those that are more likely to sustain a, or recessionary environment.

You know, as we said earlier in the prior webinar in March, it's difficult for us to speculate on the longer-term impacts of sustained health risks and, and, and increased volatility levels. And the macro that may result from that, I think we'll have a better impact quite frankly, once the Q2 earnings come out. And again, we have been living through an environment where things seem to be stabilizing, but it's important that we point back to something that we told everyone in March from the peak of the crisis, which is that this is not the first time that we've seen an increase in macro volatility, of markets from health issues, safety concerns.

And that is by no means meant to make light of the COVID-19 pandemic and the surrounding environment, but it is helpful to put things into perspective. And it's also often helpful to reflect on historical events and the subsequent recoveries as a potential prognosticator on what's likely to happen during these and immediately after these events. And so, what we can say today is that in the U S you know, public market sentiment, as it turned positive cautiously positive for some it is showing signs of a V-shape recovery. We'll see if it persists.

Unemployment has been improving despite being at new record levels. And the new cases of COVID-19 have dramatically declined. we are seeing new hotspots and obviously things change day to day but overall, it seems as though companies are, are reopening their strategies and starting to get back to business, it's not going to happen overnight, but things are moving in the right direction.

So what does this all mean for the types of companies that we invest in for this fund? You know, we can, first, it goes without saying that COVID-19 has had, and will continue to have an impact on the private market ecosystem in a number of ways, and that's not going to go away overnight. But it is important that we appreciate if it's, it's likely to fully assess the implications, we still have some, some data that we need to see in the coming months and quarters ahead.

But as we've discussed with you before private assets tend to involve less volatility due to the fair market valuation standards compared to publicly traded assets, which are essentially priced every second. That's not to imply that private assets themselves are immune to the same risks that publicly traded assets face, but rather that the implicit valuation frameworks we deal with result in private assets, having relatively low correlation to the public markets.

And this could be viewed as a portfolio construction advantage by some, and Kevin will touch on this momentarily as it relates to, to the fund and also to the underlying portfolio itself. Just quickly in terms of evaluations of late stage private companies, we continue to believe overall, there should not be a material negative impact in the near term. And again, we'll, we'll go through examples of the portfolio to provide some updates on that.

And we expect this to continue, particularly if the signs of the recovery that I touched on continue. there are certain sectors that are more vulnerable to the COVID crisis, as I mentioned earlier. And so, we expect companies in those categories to see their applied valuations fall as updated financial metrics become available, which means essentially that we expect the value of these companies to be driven down as the projections come out when a company's need to re-forecast to the downside.

And we'll also see if, if new rounds of financings come out that are lower. We've already seen that happen for some sectors and that'll continue, but commercially companies and other sectors and mostly technology enabled sectors have been, and we continue to believe will be positioned well to thrive in the current environment so we should expect to see out-performance for that group.

So, in the aggregate, this delayed impact that, that we see from the private market valuations relative to the public markets which is called a lag effect it cannot be immediately measured as we can see in the public markets. Now, if there were a sustained period of increased macro volatility you may see a more significant lag effect on the valuation for private assets, but we don't believe it would reach the magnitude that we've seen for the public market.

And keep in mind the public market parables, which are part of our evaluation framework are just one of many inputs that we use for our evaluation purposes. So, we can't assume that private companies will decline in markets like this. And again, Kevin will give you some tangible examples of that, and we've shown in the past that we've moved in a positive direction due to other inputs in our evaluation framework that offset what may be a decline in public comps, which again, is driven by this lack of correlation with public markets.

We may see less up round financings. We may see more protector provisions in late stage financings for these companies as investors clearly gain more negotiating leverage during the cycles. And Kevin will give you examples of some of these, but for companies that are operating well in strong sectors we're going to continue to see where we believe our, stable, if not up round financings.

And then really quickly in terms of the exit environment, which is always important for this investment strategy. You know, we're, we're still waiting quite frankly, on final data from certain sources, but it should not be a surprise that year to date. And particularly during Q2 there was a dramatic slowdown in both M&A and IPO activity. And the IPO market essentially came to a standstill for a period of time, which for companies that are not as strong and are in need of capital raising through public markets and have investors that may be not as strong or able to finance their companies, that could have negative implications.

But for other companies, we think essentially that are stronger. They're just going to delay and wait until there's a better time to optimize the outcome. We have seen a reopening for certain companies of both the IPO and many markets in May, and that's continued in June. And we're hearing that there may be some significant IPOs launched during the second half of this year including potentially some names in our portfolio. But again, there's already been, and we've already been experiencing a dampening impact of exit activity in terms of both M&A and IPOs during, and leading up to this pandemic. And certainly it continued during it. and then finally I'll just point out again that the combination of a dampening evaluation and exit often has led in the past to better pricing opportunities for investors to buy private assets as there is a tendency for sellers to become less price sensitive, particularly for these liquid assets.

And this dynamic is even further amplified when you factor in the increased macro volatility that we've been experiencing. So, Kevin will give some examples shortly, but we are very actively investing in this environment and taking advantage of some price dislocations. So again, it continues to be very difficult to see such loss of life, suffering and the dislocations globally that isn't stemming from this COVID-19 pandemic. Further fueled by what I mentioned earlier, things ranging from social unrest to political challenges, but we do find solace some solace, at least by the significant decline in the daily reported cases of the virus what appears to be progress being made in terms of the past to treatments and vaccines, declining unemployment rates the makings of a V-shape recovery, and again, a, a phase reopening of the economy.

And for the late stage venture ecosystem we, we continue to believe that the stronger companies are going to continue performing well. and, and we're very bullish. So we're cautiously optimistic. I apologize if this dragged on, there were a lot of topics to cover. And if any of you would like to get into any of this in further detail, we'd be happy to make ourselves available for that. but Kevin, I'm going to pause and turn it over to you to give a fun level update.

Kevin 20:41

Thanks Christian. so, as we've done in the past for the benefit of those [inaudible 00:20:46]. I'll give a brief description of the fund and what we're trying to do. this is a publicly registered closed end interval fund that purchases late stage venture backed private companies. but the purpose of the fund is four-fold really. We're trying to get access to all investors to this asset class, and we're doing it with the regulations and transparency of a 40-act registered fund. we're trying to provide liquidity to an asset class and has very little liquidity. And we do that with the interval function of the fund. So every quarter we get 5% of the net [inaudible 00:21:26] to the fund in terms of liquidity. Obviously, we're trying to build out a diversified portfolio within this registered fund. And we'd like to think that it's managed by season portfolios mana- management team with over four decades of collective experience in venture capital and private equity investing.

So, with that said that that is what the fund does. And I'll start with a fairly high-level overview of what's been happening so far this year. This is definitely an unprecedented year in some ways I'm not even sure what to say. It's kind of hard to believe what's going on. I feel like all of us are in the twilight zone, or it's a groundhog day. Every day we wake up at our homes trying to figure out what's going on in the world, but the fund continues to march forward.

And so, at a high level this is what we've done so far this year. we were able to add five new companies to the portfolio. We've deployed $10.2 billion in these new companies, as well as existing companies that we're, we're really excited about in the portfolio. We did have one exit which snuck in before the pandemic actually hit. And here's the interesting part. You know, we've had 10 company finances within our portfolio companies. So, while the IPO market has been fairly shut down and the M&A market has been shut down, companies are still raising capital. And I think you'll be surprised to see where they are actually raising capital.

So, here are the new positions in the portfolio we invested in Algolia, Checkr, a company called CourseHero, MemSQL and Trax. We were trying to be very careful of course, given the environment, what types of companies were, we were getting into. Checkr is a, is a platform to provide background checks, it's actually highly used in the gig economy for companies like Uber or Lyft, DoorDash, Postmates, things like that CourseHero is an online learning platform with over 40 million core specific studies. And the interesting thing about CourseHero is the content is really contributed by the community of students and educators. So if you have any kids in college, most likely, they're probably using this product.

Trax retail, it's really an image recognition platform that allows manufacturers and retailers to manage their inventory. We're really excited about this company as well, and they're doing extremely well on this, this environment. MemSQL is an hour database provider kind of a tactical type of company, but really the way to look at it is it takes large amounts of data, you're able to, to process that data inquiry information to make allows companies to make better decisions.

And finally, Algol- Algolia is, is as a developer of smart search engine optimization, and the way to think about this is really powers in app and on websites, search optimization. So similar to Google where they're searching for websites, this co- this company powers of search optimization within applications. And we kind of look at this company potentially as an acquisition for, for Google or for Yahoo like that.

Christian if you can move to the next slide. Yeah. So, here's, here's what's happening. And this is really interesting for us. We've had 10 financing activities for portfolio companies, and nine out of 10 financings have been flat to up. And so, this is extremely positive because when we first entered the pandemic, we really thought of be A, it'd be very hard to raise capital in this environment and B, if you were going to raise capital it would be a significant down round. But as you see here, we have, and I'll go through this list fairly quickly.

Companies that are doing really well in this environment have done quite well in raising capital. So what it means is, is an ed tech company. They raised $50 million and they went from $710 million valuation to a $2.1 billion valuation. So, a really nice especially given the environment, but ed tech companies are doing extremely well.

Everybody is at home. a lot of people unfortunately are unemployed. People are reskilling themselves, and people are at home trying to do this. And they're using companies like [inaudible 00:26:04] and other companies in our portfolio. Turo is a company at risk. They, but however, they did raise an extra $30 million. It was an extension of their last round with a flat valuation. So, we're happy to see that transitions in the transportation industry we saw SpaceX increase their evaluation from 34 billion to 36 billion. And they raised $346 million.

One of our favorite companies in the portfolio it's had a lot of media lately. they started the star link business this year. And of course, everybody around the world was watching what they were doing two weeks ago when they put two people into space, the first private company to do so. So the optics alone around this company, I think when they go, go to raise more capital at the end of the year, which typically they tend to do, whether they do an internal tender, I think the optics alone around this company is going to really up their evaluation even more.

Lookout is a cyber security company; they haven't raised money for four years. They were able to raise another $50 million at a flat valuation. So again, happy to see that these guys now have a really healthy balance sheet, they're doing extremely well and they were able to release capital in this environment. MemSQL which we just mentioned no valuation, but they did $59 in venture debt. DigitalOcean also $50 million increase from $689 to $1.2 billion evaluation. Marqeta I would like to highlight that company in particular because a lot of people probably saw about a 2% plus in NAV for us. Well, Marqeta raised $159 at a $4.3 billion evaluation. That was a up from a 1.9 billion valuation. So this company, it's, it's a finance payments company. It's doing extremely well; it had a record amount of sales in the last couple of months. And it's, it's driving returns for us. So excited about that company.

Fundbox, $20 million evaluation, a 20 million, raise $20 million when the extension of last round, but it was a flat valuation. And then we get to Lime and, and here we have to say this is the type of company that's going to really struggle in this environment. You know, usually depend on traveling customers to scooter company.

However, prior to the pandemic, Lime is really executing on their business plan. And it was just really unfortunate that they didn't raise capital towards the end of last year, but they did raise $170 million. They partnered up with Uber and you saw a really big hit to their valuation from 2.4 billion to 510 million. So, you'll see, you'll see that, effect or NAV, it already has. You saw that when our NAV came down about two and a half percent, that was part of that is along with other adjustments. When you make into a portfolio, but really no surprise that a company like this is not going to be able to raise capital in an, a valuation.

And I finally saw Robinhood come through $430 million and they bumped their evaluation up to 8.4 billion from 7.6 billion. this, this company has some issues when the volatility initially hit. It's a mobile training company, broker dealer. And of course, since then though they've barely been taking advantage of all the city vole that's going through in terms of trading stocks and they've been doing extremely well.

The one exit that we've had, was an IPO at the beginning of the year, one medical group. the IPO was on January 31st. They price it at $14, they raised $245 billion. the lockup actually expires for next month as, as is typical for a lot of traditional IPO, a six-month lockup. And so that's coming off next month. And we bought this company at $8.20 and it's trading over $30 right now. So, this has been a really good exit for us. It's digital health. I use it, it's an app on my phone. You can actually talk to your doctor via your phone get your prescriptions filled off your phone. So this company is doing extremely well right now.

An exit refers to a plan to dispose of an investment in a business venture or financial asset. Business exit strategies include IPOs, acquisitions, or buy-outs.

Christian if you want to move to the next slide, this is our current portfolio holdings for those who remember our largest positions in the upper left hand corner, all the way down to the small positions in the lower right hand corner 23andMe is our largest position followed by SpaceX and then Dataminr. I just wanted to put this up to kind of continue to show the diversification that we have in the portfolio. We've got a lot of companies are here, and really within this portfolio, like what's been doing well in this environment and what's not been doing well in the environment. You can look at 23andMe, they've done recent partnerships and collaborations and researching COVID-19. so, this company continues to do well, we think they're probably going to raise some more capital, hopefully at a much larger valuation. And that of course, would, would drive returns for us.

Dataminr is another company that's doing extremely well, it's an analytics and big data company. it's one of the companies that actually can detect social media, clusters and news, and then be able to disseminate it to all the other sources, they were able to detect the, the pandemic or the COVID-19 outbreak before or government was able to actually announce it.

Marqeta obviously a company doing really well. I already mentioned it. They had the record month in, in March and April. And so really excited again about that company. Company like Trax, which is one of our new positions grocery stores that we utilize a Trax, Trax image software to optimize inventory. You can imagine grocery stores are doing extremely well and they run out of product pretty quick. And so this technology is really helping that type of sector extremely well.

Nextdoor is a company that a lot of people probably use. Everybody's at home, it's an online social media company. Neighborhoods use it to update what's going on in a neighborhood. And in this case, they're able to post updates and available services during the shelter in place. So, this company is doing really well company. Palantir, probably lot of people might know about analytics, big data company recent signed contracts with the government and other companies to help combat and respond to COVID-19.

And they're probably hearing news about them right now that they've anonymously or confidentially filed for their IPO, which looks to potentially happen in September. So, this company is becoming a bigger position in our portfolio and we got our fingers crossed for this one that it could actually be a really good exit come the fall. And then finally, as I've talked about before, if you look at our portfolio, a lot of the ed tech company doing really well, we can point it including the Udacity and CourseHero.

So, so this is not an exhaustive list, this is just kind of trying to go through and highlight some of the companies through, through wellness environment. On the flip side we're really concerned or monitoring companies like Lime transportation companies. We've seen the write down in, in li- Lime round, although now we're pretty confident that they're going to come out of this a lot stronger, given that the backing in the balance sheets that they have and the partnership they have with Uber.

A company like Chargepoint, the Chargepoint has charging stations, which are relying on customers driving. Obviously this has decreased a lot. So, these, this is not to say that these companies are going out of business but just to say that these are the companies that are vulnerable in this environment.

Turo transportation industry, again, they raise capital on a flat round. So that was a big surprise. But definitely it's going to help them get through this period of time with car rentals depending on traveling customers, of course. and of course, all the ad tech company that we, have in our portfolio. PubMatic, AdRoll, OpenX, these are all ad technology companies and enterprise companies scaled back their spend due to, to what's going on in the environment.

So naturally these companies are going to get hit and probably the last one I'd point out is Wag. if anybody have used this application into dawn blocking app. And of course, everybody's at home, I've got two. I'm certainly not using an app at the moment I'm walking my own dogs. So this is an overview of what's doing well in this environment, what's not doing well.

We continue to try to take advantage as Christian said of the volatility in the market and take advantage of some of the companies that are trading at large discounts. So, we're adding to our favorite companies and trying to pick up companies that we have not been able to get access to in the past. So moving on to the actual fund performance, we're really happy to say, I think we've been holding up extremely well in this environment. Our biggest draw down on the year, it was about two and a half percent when we had to write down and adjust some of our evaluations based on the companies that were, were struggling in this environment, as well as companies like Lime. but that was offset by the companies that are doing really well. Like Marqeta Nextdoor, Palantir and the ed tech companies. so, so far this year for past month, we're up 65 basis points.

A drawdown refers to how much an investment or trading account is down from the peak before it recovers back to the peak.

For the past three months, one and a half percent for the past year of 5.1, 2% and year to date as of May 31st 2.77%. although at this point right now, as we stand today, it's about three and a half percent. That compares to our benchmark, the Russell, which is down about 16% on the year.

On the cash flow updates. Another surprise we've been seeing a decent amount of, of intros since the beginning of the year into March and then into April and May. we were definitely expecting this to fall off. It did a little bit in April. it's, it's not as good as we the influence we saw in Q1 of 2019. but it's much better in Q4 of 2019, until you see an average of about $4.7 million coming in per month. and then this month we're actually off to a pretty good start and we're expecting a few allocations to end up the month.

As it relates to redemptions, you saw $10.3 million that we had to get back to shareholders in March. we did have to prorate for this quarter to the second time in the history of the fund, we had to do that. Obviously we were the, the eye of the storm at this point in March when all the volatility was taking place, a lot of people were looking to get cash.

And our fund, frankly, is a little bit of a victim of, of our own success. We're one of the few portfolios that were up on a year. And so, people did sell us. And so we were able to return $10.3 million in March, and, and then you can see also in terms of cash deployed, we took advantage as we now mentioned a couple of times of the volatility and marching, we deport six and a half million dollars. And again, really going after companies and trying to take advantage of big discounts in the secondary market, as well as getting into companies that are typically pretty tough to get into. And so that's what we were looking to do and continue to look to do. And so total year to date, we've deployed $10.2 million.

So that's the extra general update on the fund. I did have to kind of rifle through that fairly quickly, but again, we want to make sure that everybody is getting at least a brief understanding of what's going on under the hood, even though we're all at home and are trying to deal with the newness of that, the fund continues to march forward and there's, there's a lot going on you know, behind the curtain. And so, again, any updates or any interest in any particular company, please let us know. we do make ourselves available as Christian mentioned, and we can go into more detail into some of these companies, but I'll hand it back to you, to you Christian, to finish up the portfolio update as well as the farm to help work on a year.

Christian 39:34

Great, thanks Kevin. That was, that was very helpful. And I think it's consistent with what we told everyone during the prior webinar and on all of our one on ones is that our fund and this environment and this overall late-stage private equity ecosystem is not going to be immune to the types of challenges that, that we're facing. So, with regards to this slide again, this is something we've been showing you the last couple of times during these webinars. We're just trying to provide a visual in terms of how the underlying fund has constructed its portfolio since inception. And so, to keep things brief we've now invested in 93 companies since the inception of the fund of which close to 40 of them have already been exited or realized.

In terms of the active portfolio companies, so we have 56 active portfolios. Kevin just talked you through and showed you which ones those are I think it's an important data point to, to share that of these 56, 48, or 86% of these were added over the last few years. And that's important because as we've been telling our investors, we believe that this underlying portfolio has quite a bit of upside to grow.

You know, when we make our investments, we're making the investments that we believe is a very attractive entry point valuation, but we're expecting to get a certain return on that valuation. And so, if you consider that these companies are still in our view, fairly young and growing into their exits, we're quite excited about the upside that exists in this fund today. And, and that said, we, we do believe that some of these companies that have invested in over the last few years, as well as some of the older investments, despite the environment, which is no doubt challenging we do believe that some of these have a chance to potentially exit during the second half of this year.

And Kevin already touched on one of them, but there are other ones that we can't disclose details on, but there are a number of companies and we think, think still have the potential assuming the environment stabilizes and continues to improve to generate attractive exits during the second half of this year and clearly into 2000 2021.

This is just a, a more, I think extensive depiction of what Kevin was talking in terms of cash deployment. You know, you can look at year to date at 10.2 million being well below what you saw in terms of activity last year. I think it's important to point out that last year was clearly our most significant year of deployment on record, totally more than the three prior years combined the 10.2 million is as Kevin just talked through, including both investments into new additions, as well as investments into some of our existing holdings, or there may be new opportunities on a secondary basis or new financing rounds.

You know, I think what has to be said here is that we are being very conservative in terms of how cash is being managed in this fund, given the current environment. So, we're managing the cash in this portfolio very conservatively while being actively investing. And we're, we're being obviously very selective in terms of the assets that we're pursuing. And we're also, due to the environment writing smaller check sizes. So I think the 10.2, if you look at it on a year, over year basis may seem light and it is, but there's a lot going on around that ranging from portfolio construction to cash management, and really trying to find what we believe are the very best opportunities right there at the best prices in this environment.

You know, we're, we're certainly excited, as Kevin said about the inflows continuing, we're hopeful that those will continue increasing during the second half of the year, and that will allow us to increase our check size and connectivity. So, and trying to wrap things up here we appreciate everyone's patience. You know, we're going to continue actively monitoring the existing portfolio. You know, we're very much in touch with the underlying companies and VCs that we have relationships with. we're continuing to be disciplined in the types of companies that we seek and into the dislocations that we're trying to take advantage of.

There are many motivated sellers out there and so we are certainly trying to do our best to include high caliber positions, and high caliber securities at good prices in this portfolio. and the good news is there's a better chance to get into hard to access private companies during periods like this. As existing investors we'll tend to pass on the ability to maybe take advantage of a secondary opportunity or execute what is called their rights of first refusal, because in many situations they're deciding that it's more prudent for them to reserve capital to protect their existing investments.

So rather than the offensive, a lot of these groups were being defensive and that creates opportunities for us to get into names that may have historically been more challenging. We're continuing to do deep dives into diligence to understand what we're buying into the stewards around the board and around the management team to make sure that they have the experience to navigate around these markets. We're being very prudent around the strength of the balance sheets in these companies, as well as monitoring what those company's burn rates are which means essentially the amount of capital that a company is spending relative to the amount of income it generates.

And so, we want to make sure that the companies are, are very thoughtful in terms of how they're spending during, what maybe a down cycle for some companies. And we're keenly aware that they sustained the volatility potentially a second wave of COVID-19, which may come, may come in months or quarters these could create more impacts to the valuation environment and the exit environment.

But again, we just have to be reminded that investments made during periods like this have historically had strong performance. and we've seen that in our portfolio historically, and we've already noted that even in this environment in this portfolio, we have a number of companies that we still believe have the ability to exit given how strong they are, and the addressable markets that they're playing in. And that'll only increase so long as we continue having strong public market recovery and hopefully an improvement of the, the economic environment.

And it's also encouraging to see there have been successful IPOs involving tech oriented business that had happened a year to date, not as many as, as any, excuse me, as many as them as we would've liked, but there has clearly been a number of exciting IPOs that have performed well, which is encouraging. So, I guess in summary, you're going to expect that we are continuing to be disciplined, thoughtful around cash management, thoughtful around portfolio construction and very much monitoring the macro as well as aligned portfolio. But as you can tell, we remain quite optimistic about the about the outlook for, for this portfolio and the asset class that we're investing into. So Kevin, before we move on to the Q&A anything else you wanted to touch on?

Kevin 47:40

No, I just, I really appreciate everybody's support, especially the shareholders that have been with us for a long time. We're doing the best we can given the situation. And I think so far this year, I'm really happy to say that we've been able to hang in there in terms of our, our NAV and being able to execute on, on the types of companies that we're trying to get into.

Christian 48:04

Great. So, let's move into the Q&A, we, we, we do have a few minutes left. This does conclude the, the portion of our presentation today that we wanted to cover with you. As a reminder, if we don't answer your questions today, we will get back to you shortly thereafter, this, this webinar. So why don't we just kick things off Kevin, I'll read a few of these and we can split them up.

The first one here how have you accounted for COVID-19 on your, on your NAV, your, your Net Asset Value? great question. Very popular question. I'll try to address this without getting too deep into the weeds, particularly since we're short on time, but you know, the simple answer here is that we have fully accounted for COVID-19 within the NAV of this portfolio. And we've done that by maintaining direct communication with the underlying companies, the VCs in touch with domain experts in the markets we're monitoring your performance, the balance sheets. And we're also observing quite frankly, how and measuring how public market comparable earnings reports and respective sectors have been getting impacted.

Some clearly has been negatively impacted. Some has been positive. Kevin covered that. And then we have a very extensive evaluation framework where we're able to essentially capture all of this information through a combination of both static and dynamic data inputs. And we factor in a scheme of different weightings and discount factors in order to derive a NAV on a company by company basis. And we did see a, a modest decline in NAV due to COVID. And you can all see that, but again, this strategy is not correlated to public markets.

And it's also worth noting that this is a technology-oriented fund, as many of you know, and we have to keep in mind that the NASDAQ is currently trading essentially at record highs. So it should not be a surprise on how well this underlying portfolio is held up. So, I hope that helps Kevin, I'm going to move on to the next one. you could maybe elaborate on this one. We did cover this briefly. How has the perform the fund performed this year, year to date?

Kevin 50:30

Yeah, so we definitely did touch on this in the presentation. We are up around three and a half percent right now. And I think again we've put a lot of focus around the volatility or the lack of volatility of our NAV. And so you saw us sort of get off this year to a good start with the exit of one medical, which was driving returns.

And then we saw the adjustments take place as well as companies like, Lime with their down round, which caused about a two and a half percent dip in NAV. and then we, of course we, we recovered with some of the companies like Marqeta I'm happy to report that this is actually an all-time high in NAV for us, as well as an all-time high in, in A. Cause we're sitting at about $215 million in A so happy to report that. And we're hoping to, to continue with that as well for the rest of the year.

Christian 51:33

Great. Thanks Kevin. I, I see a couple more evaluation questions. I hope that my explanation for the first one was helpful. You know, we, we do when there are financing activities in the portfolio, which Kevin covered, those are all captured by the evaluation process. And so hopefully that was helpful, happy to address further offline. Here's a question with regards to Kevin you can I think you actually just touched on this perhaps, but why don't I take this next one.

What are your views on the asset class for the next 12 to 24 months? One, one might argue that we have an inherent bias given that we live and breathe this, this asset class, but answer the question. You know, we continue having strong conviction around this kind of late stage venture and growth-oriented asset class in terms of the opportunity set the ever-increasing number of hyper-growth businesses that are creating disruption.

Many of which have what we believe are sustainable business models. There's been an increase level of discipline around balancing growth and profitability. We've talked about that in past webinars. It's a very strong point. The public market demand for these companies, even during times like this, they'll continue to be quite strong. And, and there's a significant amount of balance sheet capital held by the market to fund M&A activity.

I think the, the latest numbers are there's roughly a half trillion dollars alone that's on the balance sheet with companies like Amazon, Microsoft, Google, and Apple. And those guys are always looking for ways to, to grow and, and then finally, I would just say the, and it's of equal importance. You know, we believe that the extended life cycle of these companies is going to continue creating the need for liquidity that we address.

And so, we don't see the, the life the life expectancy of these companies shrinking anytime soon. And so, so long as that continues to persist, there will be the liquidity needs that we can solve for. And so, so yes, we, we do remain bullish on the environment over the next couple of years. Kevin, there's a question here about space X, how did some successful rocket launch impact space X? I think you touched on that briefly, but maybe you can elaborate.

Kevin 54:05

Yeah. Well obviously I think the optics of that will increase the valuation when they come to the next round. We didn't have to make, nor would we make a valuation adjustment based on that alone. unless we saw the only time, we would make evaluation is less than we saw a change to their income because of that, on a balance sheet, or we got some other types of valuation for within our, within our framework, that would cause us to make that adjustment.

So, the, that as, as great as it was didn't affect our evaluation on SpaceX. but we did get effective at the beginning of the year when we saw the, the bp up in the round. I think though what you'll find is, as I mentioned before, because of this, because of their style in business and then, and then turning on that business they will be raising money, I believe, as we normally do towards the end of the year, beginning of next year at a much higher valuation, and that will in turn drive returns.

Christian, I do see you another question sort of, as it relates to the companies as with respect to Palantir, cause I know people are particularly interested in this, given all the news, and it's asking me to comment, or us to comment on the reports with Palantir public offering and how the fund is affected or impacted? The, the reports again so far until we actually get information, update information, we won't make an adjustment. But typically, when a company does file their S1 and they go public, we will slowly get information, which we will take in.

Christian 56:30

That's great. Thanks, Kevin. I think we’re; we're certainly running short on time. We're coming up on an hour here and we certainly want to be respectful of everyone's calendars. You know, so I think what we'll do here is we'll, we'll wrap the webinar up for today. You know, again, any questions that we were unable to address we will reach out to those of you directly. We're always excited to be able to connect with all of you directly and to share our sentiments and address any questions or concerns you have.

We did flip through some important disclosure information while we were addressing some of these questions and you know, with that, we just want to thank all of you again. we're very grateful for your support. we know this is a challenging environment for many people personally and professionally we're very grateful that you continue backing us. We're, we're working hard, as you can tell. We're very excited about the portfolio and about the market opportunity before us. and look forward to staying in touch. Kevin, I'll, I'll turn it over to you.

Kevin 57:41

Yeah. I also want to thank everybody again for their support. Some of the, the people in the phone have been with us, supporting us for a long time. So thank you very much. please stay safe, stay healthy. thanks for joining the webinar and have a great rest of the week.

Notes:

  1. Chicago Board Options Exchange's Volatility Index (VIX) is a popular measure of the stock market's expectation of volatility based on S&P 500 index options.
  2. The NASDAQ-100 is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market.
  3. The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
  4. The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.
  5. The Russell 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index.

Private Shares Fund

Top 10 Holdings as of 09/08/2021*
*Represents 26.08% of Fund holdings as of September 08, 2021. Holdings are subject to change. Not a recommendation to buy, sell, or hold any particular security. To view the Fund’s complete holdings, visit privatesharesfund.com/portfolio.

Notes:

  1. Chicago Board Options Exchange's Volatility Index (VIX) is a popular measure of the stock market's expectation of volatility based on S&P 500 index options.
  2. The NASDAQ-100 is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market.
  3. The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
  4. The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.
  5. The Russell 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index.

Important Disclosure

AS OF DECEMBER 9TH, 2020, LIBERTY STREET ADVISORS, INC. REPLACED SP INVESTMENTS MANAGEMENT, LLC (“SPIM”) AS THE ADVISER TO THE FUND. AS OF APRIL 30, 2021, THE FUND CHANGED ITS NAME FROM THE “SHARESPOST 100 FUND” TO “THE PRIVATE SHARES FUND.” THE FUND’S PORTFOLIO MANAGERS HAVE NOT CHANGED. Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus with this and other information about The Private Shares Fund (the "Fund"), please download here. Read the prospectus carefully before investing.

Investment in the Fund involves substantial risk. The Fund is not suitable for investors who cannot bear the risk of loss of all or part of their investment. The Fund is appropriate only for investors who can tolerate a high degree of risk and do not require a liquid investment. The Fund has no history of public trading and investors should not expect to sell shares other than through the Fund's repurchase policy regardless of how the Fund performs. The Fund does not intend to list its shares on any exchange and does not expect a secondary market to develop.

All investing involves risk including the possible loss of principal. Shares in the Fund are highly illiquid, and can be sold by shareholders only in the quarterly repurchase program of the Fund. Due to transfer restrictions and the illiquid nature of the Fund’s investments, you may not be able to sell your shares when, or in the amount that, you desire. The Fund intends to primarily invest in securities of private, late-stage, venture-backed growth companies. There are significant potential risks relating to investing in such securities. Because most of the securities in which the Fund invests are not publicly traded, the Fund’s investments will be valued by Liberty Street Advisors, Inc. (the “Investment Adviser”) pursuant to fair valuation procedures and methodologies adopted by the Board of Trustees. While the Fund and the Investment Adviser will use good faith efforts to determine the fair value of the Fund’s securities, value will be based on the parameters set forth by the prospectus. As a consequence, the value of the securities, and therefore the Fund’s Net Asset Value (NAV), may vary. There are significant potential risks associated with investing in venture capital and private equity-backed companies with complex capital structures. The Fund focuses its investments in a limited number of securities, which could subject it to greater risk than that of a larger, more varied portfolio. There is a greater focus in technology securities that could adversely affect the Fund’s performance. The Fund is a “non-diversified” investment company, and as such, the Fund may invest a greater percentage of its assets in the securities of a single issuer than investment companies that are “diversified.” The Fund’s quarterly repurchase policy may require the Fund to liquidate portfolio holdings earlier than the Investment Adviser would otherwise do so and may also result in an increase in the Fund’s expense ratio. This is not a complete enumeration of the Fund’s risks. Please read the Fund prospectus for other risk factors related to the Fund.

Companies that may be referenced on this website are privately-held companies. Shares of these privately-held companies do not trade on any national securities exchange, and there is no guarantee that the shares of these companies will ever be traded on any national securities exchange.

The Fund is distributed by FORESIDE FUND SERVICES, LLC