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General Commentary
April 8, 2018

Springtime in Growth Country

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Market Snapshot

Indices Week YTD

With President Trump huffing and puffing on the trade front, investors have been distracted from the positive momentum in growth companies over the past fifteen months. The GSV 300, which is made up of the 300 fastest growing companies in the world, is up 59% since January of 2017, versus the S&P 500, which has advanced a comparatively modest 14%.

As a direct consequence, the IPO market has shown more life than it has in years, with 44 IPOs to date (55% year-over-year increase) and $23 billion in proceeds (108% year-over-year increase).

But more importantly, leaders such as Dropbox and Spotify have decided to take advantage of the healthy growth environment. The Stock Market reflects the confidence investors have in the future, and the IPO market is an even more acute indicator. If investors are pessimistic, new issues shut down. If investors are optimistic, they treat IPOs like fresh oxygen that they can’t get enough of. DBX and SPOT have been the perfect shot in the arm to keep markets moving the right way. (Disclosure: GSV owns shares in Dropbox and Spotify)

Dropbox made its public debut on March 23rd, pricing above the range and popping 36%. Dropbox is the fastest Software-as-a-Service business to reach a $1 billion revenue run-rate according to IDC. 2017 revenues were $1.1 billion, up from $845 million in 2016 and $604 million in 2015 – a 35% CAGR for the period.

Dropbox counts over 500 million users across 180 countries, including 100 million new users added since the beginning of 2017. More than 400 billion files have been uploaded to the platform to date. The company is now up 43% since going public and raised a total of $969 million in its IPO, including the proceeds generated from selling additional shares this week.


Source: GSViQ, GSV Asset Management

This week, all eyes — and ears — were on Spotify as the Stockholm-based music streaming platform made its anticipated public debut via a direct listing. The company priced well above the price of most recent private transactions, and is now a $26.5 billion market cap company.

As of December 31, 2017, Spotify counted over 159 million monthly active users. It also had 71 million paying subscribers, a 46% increase over the previous year. Apple, by contrast, reported on March 12 that it had 38 million subscribers for its paid music streaming service, which it launched in 2015.

On a relative basis, the U.S. IPO market rebounded in 2017 as 153 companies listed – a 50% increase over 2016. There were 64 VC-backed IPOs in 2017 versus 40 in 2016 according to Renaissance Capital and our research affiliate, GSViQ.

New Fundamentals Have Led to an IPO Backlog that Has Been Building for 15+ Years

Source: GSV Asset Management
Disclosure: GSV owns shares in Lyft

Set against the backdrop of an IPO backlog that has been building for the last 15 years, however, we believe that there could be plenty of rebound yet to come. According to data from the National Venture Capital Association, from 1990 to 2000, there was an average of 406 IPOs in the United States per year. From 2001 to 2016, it dropped to 108.

GSV 300

Beyond IPOs, when it comes to tracking the state of play in the global growth economy, an old saying rings true: “If you can’t measure it, you can’t manage it.”

So in 2015, GSV launched the GSV 300 Index, which we believe is the best representation of what is truly going on with growth companies, their valuations, and performance. It is an index of 300 of the World’s fastest growing companies, selected systematically based on key fundamentals, including revenue and earnings growth, geography, valuation metrics, and market capitalization.


Source: Yahoo Finance, GSViQ

The most relevant index for Institutional Investors to date has been the S&P 500, which is a good proxy for broad Market dynamics. But with a 5% long term growth rate, it hardly reflects conditions or performance for fast growing companies.

The fact that the S&P 500 is solely a market cap weighted index is problematic in that a $100 Billion Market Cap Company has 100x the impact on the Index as a $1 Billion Market Cap Company… not realistic in that a portfolio manager who viewed two portfolio companies as being equally attractive would have 100x more of that company in their portfolio.

The most well-known index, the Dow Jones Industrial Average (DJIA), is created with an even more bizarre rationale in that it is weighted by share price. So in other words, if one stock was $30 per share and another was $300 per share, the $300 stock would have 10x the influence on the DJIA as the $30 stock.

The GSV 300, an index of the World’s 300 fastest growing public companies and a barometer for the broader Global growth economy, is up 2.5%.

The GSV 300, by contrast, is constructed using a systematic three-step process, which is summarized below: Screening, Ranking + Scoring, and Index Weightage. For a full description of the GSV 300 construction methodology, please click HERE.

GSV 300 Methodology Summary

Source: GSV Asset Management

The GSV 300 Global Growth Index
The Definitive Barometer for the Global Growth Company Ecosystem

Source: GSV Asset Management

Tracking the GSV 300 P/E, Growth Rate, P/E/G, and P/S vs. Key Global Indices

Source: GSV Asset Management

Country Breakdown: GSV 300 vs. Peers

Source: GSV Asset Management

Performance in Context
Tracking the Performance the GSV 300 vs. Key Global Indices and Funds

Source: GSV Asset Management

GSV 300 Snapshot

The average market capitalization of GSV 300 constituent companies is $13.6 billion, with a median of $3.2 billion. The 10 largest companies account for 25% of the index. By comparison, the top five companies in the 2,500-company NASDAQ Composite — Apple, Microsoft, Amazon, Facebook, and Alphabet (Google) — account for approximately 30% of the index alone.

As of Q1 2018

Source: GSViQ

Looking at the GSV 300 by geography, 41% of the index weightage comes from U.S. companies. China is the second-largest geography at 19%, followed by India and South Korea at 8% apiece. Japan rounds out the top five, contributing 7% to the index. By contrast, 95% of the S&P 500 and 85% of NASDAQ are represented by U.S. companies.

Countries of GSV 300 Constituent Companies as a Percentage of Index Weightage (through Q1 2018)

Source: GSViQ

Countries of S&P 500 Constituent Companies as a Percentage of Index Weightage (through Q1 2018)

Source: GSViQ

Countries of NASDAQ Constituent Companies as a Percentage of Index Weightage (through Q1 2018)

Source: GSViQ

Performance & Valuation

In the first quarter, the GSV 300 was up 4%, with U.S. companies rising 9% and Chinese companies gaining 3%. Segmented by GSV investment theme, “Social Mobile” companies rose 3%, “Cloud + Big Data” companies surged 15%, and “Marketplaces” and “Education Technology” were both up 3%. “Sustainability” companies declined by 1%.

GSV 300 Performance by Country
Q1 2018 Performance of the GSV 300 by Country of Constituent Companies

Source: Yahoo Finance, GSViQ

GSV 300 Performance by GSV Investment Theme
Q1 2018 Performance of the GSV 300 by Industry of Constituent Companies

Source: Yahoo Finance, GSViQ

While we are certainly rooting for strong performance, our objective in launching the GSV 300 was to create a scorecard that reflects what is actually going on in the World of growth stocks.

The T. Rowe Price New Horizons Fund, for example, has pursued a strategy of investing in small, high-growth companies since 1961. While it is actively managed, Peter Lynch observed in Beating the Street that the fund is, “as close as you’ll get to a barometer of what is happening to emerging growth stocks.”

Since small companies are expected to grow at a faster rate than large companies, they usually sell at a higher P/E than larger companies. Logic might suggest, therefore, that the P/E of the New Horizons Fund would be higher than that of the S&P 500 at all times.

This isn’t always the case, and at times when it isn’t, the New Horizons Fund can be a smoke signal for an undervalued or overheated growth economy. Over the last 50 years, for example, the New Horizons P/E has risen to double that of the S&P 500 only four times.

GSV 300 Valuation Metrics
GSV 300 Valuation Metrics vs. Key Indices (3/31/18)

Source: Capital IQ, GSViQ

Currently, the GSV 300 has a P/E (forward) of 24.2x, or 1.4x greater than the S&P 500. Our thesis is that at over 2x, it’s a warning signal for growth stocks, and at under 1.2x, it’s a buying opportunity. We’ll monitor this trend, as well as the relationships of other key valuation metrics, to determine patterns over time.

GSV 300 P/E VS. S&P 500
GSV 300 P/E as a Multiple of the S&P 500

Source: GSViQ, Capital IQ

GSV 300 P/E/G VS. S&P 500
GSV 300 P/E/G as a Multiple of the S&P 500

Source: GSViQ, Capital IQ

GSV 300 P/s VS. S&P 500
GSV 300 P/S as a Multiple of the S&P 500

Source: GSViQ, Capital IQ

Additional Q1 2018 IPOs of Note

Beyond Dropbox and Spotify, Other notable technology IPOs in the first quarter of 2018 include cybersecurity provider Zscaler, which popped 107% and is up 75% since its IPO. Founded in 2008, the company has raised $128 million from investors including TPG, Lightspeed Venture Partners, and CapitalG and was last privately valued at $1 billion in 2015.

China’s Netflix equivalent iQiyi made its public debut last week and performed -14% on its first day. The Baidu-spinoff was founded in 2010 and raised $1.9 billion from Sequoia, Baidu, Hillhouse, Xiaomi, and IDG. The company is now down 11% since its IPO and has a market capitalization of $11.3 billion.

Earlier this year, China’s Lufax announced its plans to go public in Hong Kong at a $60 billion valuation. Founded in 2011, Lufax is one of China’s largest wealth management platforms and is owned by Ping An Insurance Group. Other notable technology IPOs in the horizon include transaction management company DocuSign and cloud subscription software provider Zuora. Utah-based education and talent technology platform Pluralsight also filed to go public. The company has raised $193 million from investors including GSV Acceleration, Insight Venture Partners, and Felicis Ventures.


by Luben Pampoulov

Spring Is Here!

With Spring time here, the seasonal bike-sharing industry is finally coming to full swing — especially in North America and Europe. Dock-less bike-sharing services are new (unless you are in China), and have been selectively deployed over the last nine months. While they’ve had promising early traction, the cold and rainy winter has prevented a broader expansion. With the sun out, and with temperatures above 15°C, things are starting to change.

As you look around, expect to see a wave of green, orange, and yellow bikes filling out the streets. The three major players — Mobike (orange), LimeBike (green) and Ofo (yellow), will compete for marketshare in each and every big market.

But its not just bikes. Electric scooters are also set to boom. While they cost more — about 2x the price of the bike, e-scooters are still cheap. At $1 to unlock, and $0.15 per minute, a 10 minute e-bike ride comes up to $2.50. Clearly, prices at this level are still inelastic; whether you pay $1.00 for a bike ride, or $2.50 for the e-scooter, it’s not going to be about the price; the decision will be driven by your comfort and your time.

If you live in a city like New York, San Francisco, Paris or London, it might take you longer from A to B by car than by foot. Traffic lights, blocked intersections, bumper to bumper, no parking — all those add up to extended travel times and create an enormous waste of time, and stress. Even taking a Lyft might not help… (Disclosure: GSV owns shares in Lyft).

But a problem creates an opportunity — the bigger the problem, the more compelling the opportunity. As a result of this particular problem, we are witnessing the emergence of the Fast Mile industry — largely driven by the booming success of dock-less bikes and scooters.

Fast Mile Barometer

Source: GSV

As a first big sign of success, two-year old Mobike just sold for $3.4 billion to Meituan Dianping. Mobike is one of two Chinese companies (the other being Ofo) who took over China by storm. In the last two years, each of them raised about $1 billion in equity, and each of them expanded across major cities in China. Both also began to expand in Europe and in the U.S. late last year.

As a business, they have one major difference — Ofo’s strategy has been to buy cheap bikes, offering them for $1 per hour. Mobike meanwhile is buying more expensive and better quality bikes, and offering them for $1 per 30 minutes. So while Ofo is saving on the purchase cost, it is losing on the life time value of the bike. Today, many indications show that Ofo bikes break much sooner and need replacement. Additionally, the riding experience on an Ofo bike is also slightly worse than that on a Mobike…or on a LimeBike.

San Mateo-based LimeBike is the most popular service in the U.S., controlling about 3/4 of the U.S. market…and the company it is not even one-year old. After launching its first market in June 2017, it is now available in over 50 markets across the U.S., as well as in Zurich and Frankfurt.

Besides its rapid growth, LimeBike is also pushing to expand its E-bikes, Lime-E, and its E-scooters, Lime-S. And it is doing so in smart fashion; recently, LimeBike launched an incentive program for users to collect and charge its electric scooters overnight, with USD rewards ranging up to $100.

Similarly, LimeBike selectively offers “bonus bikes”, giving back $1 USD to the user for using that specific bike. This is done for logistics reasons, to incentivize users to move a specific bike away from an already crowded spot.

LimeBike’s future success will be dependent by the quality of the bikes, and by managements’ execution power. Similar to how Lyft and Uber managed to grow into mega platforms, bike sharing services will need a lot of capital, and will need to be quick in maneuvering and execution.

For the coming months, we expect to see fast expansion of e-bikes and electric scooters to be added to the mix. Users will have the choice between a quick bike exercise, or battery-powered rides. Bird, a Santa Monica startup, is already seeing strong penetration for its dock-less electric scooters, as is LimeBike in select markets such as San Jose or San Diego.

The convenience of dock-less bikes is far superior that of city bike services. The time and cost attractiveness are strong incentives against other public transportation choices. We are bullish on the Fast Mile theme, and expect the leaders LimeBike and Mobike to do well. 

Pioneer Notes

by Li Jiang

From Bay to Shining Bay 从湾到闪亮湾

Tencent HQ in Shenzhen 腾讯滨海大厦深圳市

I spent the past week catching my breath in Shenzhen, the city of the future.

If the 19th Century belonged to the network of European powers with their guns, germs, and steel, and the 20th Century belonged to the connectivity of New York City and London based on the strength of their financial markets, then the 21st Century will be shaped from Bay to Shining Bay, from Silicon Valley Bay (SV Bay) to Shenzhen Bay (SZ Bay) using the most powerful tools humans have ever invented, the Internet and Blockchain.

Shenzhen is home to several established and emerging technology giants including Tencent ($520 billion market cap), Huawei (private, $82 billion revenue), and DJI (private, estimated $15 billion valuation).

But I’m not a China maximist. Just as being a Bitcoin maximist or Ethereum maximist doesn’t make sense to me because they serve different purposes, I don’t think we have to be forced to choose being a China maximist or America maximist.


如果19世纪属于欧洲列强的枪支,细菌和钢铁,而20世纪属于纽约和伦敦的金融市场联系纽带,那么21世纪将形成从湾到闪亮湾,从硅谷(SV Bay)到深圳湾(SZ Bay),而用的是人类发明的最强大的工具 — 互联网和区块链。



Take Long Cover Short 取长补短

A timeless Chinese concept is the idea of 取长补短, which is common phrase used when two friends take the best strengths from each other and fill their own shortcomings. In that same vein, I think founders and investors on both sides of the pacific can learn so much from each other.


Shenzhen Speed 深圳速度

A founder we spent time with, I’ll just call him the Chinese Cowboy for his trademark cowboy hat, told us all about Shenzhen speed. He went from idea to fundraising in a month (January), to building a team in the next month (February), to launching both software and hardware products in the month after (March).

Teams in China are more willing to experiment even without a sense of clear direction. Cowboy and his two co-founders were working until 4am every day when we were there. But it’s not just sheer work, it’s the constant dinners, WeChat messages, and the sense that work is anytime and all the time.



Silicon Valley Focus 硅谷专心

In Silicon Valley, entrepreneurship is, dare I say, more scientific if not methodical. I saw that one of my founder friends had posted on LinkedIn that she spent the past 6 months intensively researching an idea before launching the company.

Silicon Valley has strength in core technology and fundamental innovations that open new markets while Shenzhen is obsessed with raw growth and execution speed. Not to say that Shenzhen doesn’t go from 0 to 1, but they are frankly more interested in going from 1 to n because in the case of China, n is a very large number.



Day 1 第一天

Shenzhen Bay and Silicon Valley are kindred spirits, connected by the idea of free flow interaction and innovation. In 1980 when Deng Xiaoping designated Shenzhen as a special economic zone, I wonder if even he could have foresaw the development of the city into what it is today. Both SV Bay and SZ Bay are cities of immigrants, both lacked establishment and history in the traditional sense, both embraces multiple cultures and languages, and both believes that frontier technologies will enables the heroes of tomorrow.

This is just the beginning.

深圳湾与硅谷有着很深的默契,以自由流动互动与创新为理念。在1980年,当邓小平指定深圳为经济特区时,我不知道他预见了城市发展成为今天的景象。 SV湾和深圳湾都是移民的城市,既缺乏传统意义上的基础和历史,也包容多种文化和语言,二者都认为前沿技术将使未来英雄成为可能。


#SVSZ #硅圳 #Bay2Bay #双湾

Shenzhen Civic Center 深圳市民中心

Ping An International Finance Centre 平安国际金融中心

Shenzhen Bao’an International Airport 深圳宝安国际机场

Market Update

Week ending April 8, 2018

World Indices

U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales