Why invest in private technology?

Private technology should be an increasingly important allocation because it offers earlier access to high-growth companies, frontier technologies and potentially superior returns.

• Technology has been a major driver of growth and investment returns, with eight of the ten largest S&P 500 companies now belonging to the technology sector, compared with two twenty years ago.
• The S&P 500 returned 10.8% annually since 2015, but much of the value creation from companies such as Amazon and Nvidia occurred after listing, with estimated post-IPO multiples above 2,500x and 5,000x respectively versus 86x and 37x in private markets.
• Private markets can now fund technology companies at much larger scale: OpenAI has raised nearly $200 billion without going public, while technology companies reportedly remain private for around twelve years versus roughly five years in earlier decades.
• Staying private longer means investors may need private markets to access frontier technologies such as artificial intelligence, robotics and quantum computing, including companies such as OpenAI, Anthropic, Databricks, Stripe and SpaceX.
• Returns are highly dependent on selecting the right companies and managers, and private technology carries risks including capital loss, illiquidity, valuation volatility and wide dispersion between investments.

Takeaway: Carefully selected private technology strategies can provide exposure to the next generation of global technology leaders before they reach public markets, but the opportunity must be balanced against illiquidity, valuation and selection risks.