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JPMorgan Chase is taking a stake in a private stock trading platform with links to Palantir to boost the bank’s efforts to connect buyers and sellers of hot pre-IPO company shares, CNBC has learned.
The bank’s investment in Zanbato, a Mountain View, California based fintech start-up, is set to be announced Monday, according to people with knowledge of the matter. Zanbato was co-founded in 2010 by Joe Lonsdale, the entrepreneur who also co-founded data analytics firm Palantir.
The move is the first in a series of investments JPMorgan may make in trading venues and exchanges that help the bank access data and prices in the burgeoning and fragmented market for private company securities, according to Andrew Tuthill, global head of private market equities.
In the six months since JPMorgan began trading the stock of private firms — a market that includes giant private companies like SpaceX, Robinhood and Stripe — the new business has experienced torrid growth. Order flow and demand from trading counterparties has roughly doubled every month since CNBC first reported on the operation in September, said Tuthill.
“It’s been a big growth area for the firm,” Tuthill said during an interview.
Interest in pre-IPO companies has surged in recent years, luring JPMorgan into an area that had been the domain of smaller, West Coast-based players. That’s partly because venture capital investors have plowed hundreds of billions of dollars into private companies in the past decade, allowing them to remain private for far longer than used to be the case. Venture-backed firms were valued at more than $2 trillion last year, according to Pitchbook data.
So at the same time that hedge funds and family offices in search of returns increasingly look to snap up shares of private firms, executives and early investors in start-ups are also seeking to sell positions that they’ve held for years, according to Zanbato CEO Nico Sand.
“Companies are staying private for so long that some of these early investors are up 10X-plus on a position,” Sand said in an interview. “Being able to manage oversized positions, these are things that every manager has done forever, but in private markets you just never had the liquidity to employ these basic portfolio management techniques” until now, he said.
The Zanbato platform, which is called ZX and was launched in 2016, has more than 100 banks and brokers as members, giving it a reach in private stock trading that no single company could match, even one as large as JPMorgan, the biggest U.S. bank by assets.
JPMorgan’s investment is the first by a bank member of the ZX platform, and Zanbato will likely allow more of its members to make investments in the coming years, Sand said.
The start-up has seen its user base more than double in the past year, while transaction volumes more than tripled, said Sand, who co-founded Zanbato in Silicon Valley along with Lonsdale and lead engineer Kevin Leung. Most ZX members saw record levels of private stock trading last year, he said.
Private companies that are larger in valuation, have been around for many years and have a diverse set of investors are likely to be the most heavily traded names, Sand added.
The investment shows that JPMorgan is willing to lean on external, tech-powered providers when it comes to serving its trading and wealth management clients rather than building all of its capabilities internally. The companies wouldn’t disclose the size of the stake or how much JPMorgan paid.
While trading in private shares is still mostly a manual process where closing a transaction can take weeks, start-ups like Zanbato are seeking to increase standardization in the nascent market. That will eventually help the onset of automation and speed the time to close deals, just as technology has collapsed the time to trade in public equities.
“One of the things we say in the private market is that time is the enemy of every deal,” Tuthill said. “Zanbato creates efficiency in execution which hopefully decreases the time it takes to get a deal closed.”
