New York-based venture capital firm Millennium Technology Value Partners is predicting that private technology companies which list over the next five years will create a trillion dollars-worth of public market value. Before floating many of these companies will first seek some form of alternative liquidity, said Dan Burstein, one of Millennium’s managing partners, in an interview with PEI.
Millennium, which spun out of The Blackstone Group 11 years ago, is a direct secondary investor in venture capital, meaning it buys stakes in venture-backed high-growth firms typically from other VC backers looking to exit.
Rapidly improving technology is creating sophisticated and profitable businesses faster than ever before, said Burstein. “Virtually every important private technology company will explore or engage in some amount of secondary shareholder activity in 2011”, he added. Last year the firm closed its second fund, Millennium Technology Value Partners I’, on $280 million. The firm predicts that secondary investments in private technology companies will grow to a $10 billion annual market sometime over the next three years.
Facebook, a company Millennium took stakes in three years ago, is a prime example of a private company which has secured liquidity without having to publicly list. Shares in the social networking giant are traded on a secondary market, with investors purchasing stakes from current and former employees. Goldman Sachs, which injected $450 million into the social networking giant, reportedly offered up to $1.5 billion in shares of the company earlier this year.
In anticipation of the rise in direct secondaries deal flow, Millennium recently recruited Alex Ferrara who will target internet companies and financial services businesses. Prior to the hire Ferrara was a partner at rival venture capital outfit Bessemer Venture Partners; and before that held a role at Goldman Sachs where he focused on technology investment banking.
Millennium also recently hired secondaries specialist Joseph Marks as a principal. Marks, who joined Millennium from Coller Capital, will help manage and prioritise the flow of portfolio deal opportunities encountered by the firm, said Burstein.New technology companies are creating “tremendous value in short periods of time and with more capital efficiency than ever”, said Ferrara. The venture capital industry is evolving to meet the capital needs of entrepreneurs, he added, referring to Millennium’s direct secondary deal approach.
Millennium has currently committed about 25 percent of its Millennium Technology Value Partners II fund.