Q&A with Mark Caccavo of Bombora Advisory

In its simplest terms, access. Family offices have been pushed out of the marquis venture funds in favor of larger institutional investors and mega funds. This has left them to allocate to newer funds (which have a significantly lower amount of unicorns ~ companies with a pre-IPO valuation $500mm or above). Additionally, the typical VC timeline to IPO or exit has increased from 6-8 years to 8-12 which leaves a tremendous amount of time until LPs are returned capital.

Through the pre-IPO market, they can access many high growth companies on the path to IPO. Granted they are participating at higher valuations, but they also typically shorten the timeline to 1-2 years and can choose the companies individually.

Most family office investors choose to carve out an allocation to pre-IPOs and invest across 10-20 different companies. Once public, they typically sell and recycle the proceeds into other pre-IPO companies.

Can I get enough information to have a handle on the company's valuation?

Valuation has long been the key attribute investors had struggled with. Today, the marketplace has significantly more data points. VCs are funding companies longer. Ten years ago companies typically went public after the Series C or D rounds, now they deploying capital into E/F/G rounds giving more data point on valuation, new key investors and growth. The active pre-IPO market also provides a bid/ask in many cases. Lastly, COVID-19 has delayed companies going public which requires companies to update their S-1a quarterly. So to the extent they have already file a preliminary S-1, they need to update it quarterly. Lastly, all of the recent layoffs have flooded the pre-IPO market with new inventory as employees look to provide some cushion until the are re-employed. Companies will have current 409a valuations for purposes of ex-employee option exercises.

RainMaker is a different kind of platform. Most of the people on it have their own family office advisory firms, M&A boutiques or are venture capitalists. So, through the network, we all work together to coordinate buyers and sellers - it is a much more discreet process. The average size of our trades is around $5mm. In many cases, we will have previously traded with a company and know the specific preferences from the company on the sale process. I will also note, in the current environment, most companies are not exercising ROFR (right of first refusal) and let transactions proceed unfettered so they can keep as much cash on the balance sheet as possible.