The Next Stock Exchange?

Motive Capital Corp is taking Forge Global public via SPAC. Forge Global is one of the leading exchanges for shares in private companies, which is essentially a stock exchange but for companies that are still private. Imagine you work at a tech startup – they spend every dollar of cash they can on growing their business, and pay their employees as little cash as possible, with most of their compensation coming as shares in the company – and the only time employees can cash out those shares is when the company goes public. The problem is, people need cash to buy houses, and send their kids to college. What’s making this issue far greater is that companies are staying private for longer, as the search for yield and growth has led more investors into funding private companies. In 2000, a company went public approx 4yrs after IPO, today its 12yrs, meaning employees have to wait that long to cash out. In comes Forge with an exchange that matches employees with investors, letting them cash out whenever they please, and Forge takes a cut of the transaction. As they attract more companies onto the platform, it’ll attract more investors, which will attract more companies, and the spiral effect will lead to higher trading activity overall – turning Forge into a stock exchange of its own. It’s already hosted the likes of – Snapchat, Square, Beyond Meat, Uber. More trading activity leads to more commission for Forge. So while the valuation is a little pricey at 12x sales, the opportunity is massive. Other publicly traded exchange platforms for bonds (MarketAxess, Tradeweb) are on sales multiples of 20x with lower growth than Forge’s 25%, and the FCF margins of these mature exchanges sit at around 40%. If we apply that margin to Forge’s $123m of sales, and multiply by the 25x growth rate, we get $1.23b. So with the current valuation at $1.6b after subtracting $440m in cash, it’s not a steep valuation gap to pay for a strong business model that benefits from strong network effects, in a massive market opportunity