JPMorgan is investing in a private equity trading venue with Palantir Link as there is pre-IPO demand for stocks
Zambato Mountain View office
JPMorgan Chase is getting involved in a private equity trading platform with links to Palantir to intensify the bank’s efforts to connect buyers and sellers of hot stocks of companies ahead of its IPO, CNBC has learned.
The bank’s investment in Zanbato, a Mountain View, California-based fintech start-up, is due to be announced on Monday, according to experts. Zanbato was co-founded in 2010 by Joe Lonsdale, the entrepreneur who also co-founded data analytics company Palantir.
The move marks the first in a series of investments JPMorgan can make in trading venues and exchanges that will help the bank access data and prices in the burgeoning and fragmented private company securities market, according to Andrew Tuthill, global director of private equity stocks .
In the six months since JPMorgan began trading stocks in private companies – a market that includes giant private companies like SpaceX, Robinhood, and Stripe – the new business has seen strong growth. Order flow and demand from trading partners have roughly doubled every month since CNBC first reported operations in September, Tuthill said.
“It’s been a huge area of growth for the company,” Tuthill said during an interview.
Interest in pre-IPO companies has grown dramatically in recent years, luring JPMorgan into an area where smaller companies operated on the west coast. This is partly because venture capital investors have poured hundreds of billions of dollars into private companies over the past decade, allowing them to stay private for far longer than they used to be. Venture-backed firms were valued at more than $ 2 trillion last year, according to Pitchbook data.
At the same time, in search of returns, hedge funds and family offices are increasingly trying to buy stocks of private companies, executives and early investors in startups, and are also trying to sell positions they’ve held for years, according to CEO Nico Sand.
Nico Sand, CEO and Co-Founder of Zanbato.
“Companies stay private for so long that some of these early investors get more than 10x their position,” Sand said in an interview. “Being able to manage oversized positions are things any manager has done forever, but in private markets you just never had the liquidity to use these basic portfolio management techniques,” he said until now.
The Zanbato platform called ZX, launched in 2016, has more than 100 banks and brokers as members. This gives it a reach in private equity trading that no single company can match, even if it’s as big as JPMorgan, the largest US bank by asset.
JPMorgan’s investment is the first by a bank member on the ZX platform, and Zanbato will likely allow more members to invest in in the years to come, Sand said.
The startup more than doubled its user base over the past year, while transaction volume more than tripled, said Sand, who co-founded Zanbato in Silicon Valley with Lonsdale and lead engineer Kevin Leung. Most ZX members saw record levels of private stocks trading last year, he said.
Larger valued private companies, that have been around for many years, and that have a wide variety of investors, are likely to be the top-traded names, Sand added.
The investment shows that JPMorgan is willing to rely on outside, technology-based providers when it comes to serving its trading and wealth management clients rather than building all of its skills in-house. The companies would not disclose the amount of their interest or the amounts paid by JPMorgan.
While trading private stocks is mostly still a manual process, where a transaction can take weeks to complete, startups like Zanbato are trying to improve standardization in the emerging market. This will ultimately aid the onset of automation and cut the time it takes to close deals, just as technology has cut the time it takes to trade public stocks.
“One of the things we say in the private market is that time is the enemy of any business,” Tuthill said. “Zanbato creates efficiencies in execution, which will hopefully reduce the time it takes to close a deal.”