Investors in private markets face a daunting information gap compared to their peers in public markets. How can private equity investors gain deeper insights and a competitive edge in the absence of the regulatory disclosures required of publicly traded companies?
Let’s look at how private equity investors use alternative data sources for deal sourcing and origination, due diligence, investment research, and even post-acquisition strategy. We’ll show how combining innovative data from multiple sources, including Similarweb, Thinknum, SensorTower, Pathmatics and Caplight, with a sophisticated infrastructure platform, such as Lagoon, allows investors to track private business activity like never before.
We chose to focus on Klarna, Stripe, and Affirm. The first two are privately-owned fintech unicorns. Affirm went public in January 2021. Key takeaways from our research include:
-Data on private companies’ job listings, web traffic, app usage, and advertising spend provide unique signals to private equity investors;
-Analyzing companies’ risks and exposures to different industries helps navigate changing market dynamics in real time;
-Blended data from different sources provide deeper insights than alternative datasets in isolation. Stripe’s pre-IPO advertising splurge, for example, only impacted the company’s valuation - not their user growth trend.
Hiring can be a leading indicator of future corporate performance. Open job listings at Klarna have gone on vacation, or as their website says: “We’ll be back soon.” Over the past six months the Swedish Buy Now, Pay Later (BNPL) darling has largely stopped hiring, according to job listings data from Thinknum, and is now focused on cost-cutting and layoffs. Job listings at Stripe are down 74% over the same time period. At Affirm, a decrease in the number of job listings of 43% has coincided with a decrease of 33% in the company’s stock price.
Thinknum Alternative Data gathers job listings directly from companies’ applicant tracking systems. Investors can also use this filter to gain in-depth competitive insights into specific market, location, and job categories. Or they can apply machine-learning techniques directly to the job descriptions themselves.
Web Traffic Referrals
Critical to maneuvering market risks is knowing the companies’ exposure to macrotrends and consumer behavior within their strategic industries. Investors can do this by analyzing Similarweb’s referral web traffic, that is, traffic coming to the company website from other websites.
- Stripe is dominant in the small and medium-sized businesses segment— i.e. those that generate under 5000 referrals per month. Stripe has 3X more customers than Affirm and 5X more than Klarna in this segment, generating almost 788% more traffic than both combined. This also means that Stripe has a greater number of customers than its two rivals.
- Klarna is dominant amongst lifestyle and fashion brands, getting most of its traffic from these sectors.
- Affirm is dominant in the ecommerce industry, where Amazon, Walmart, and Target are their biggest referrals.
Investors turn to app usage data as a proxy for tech companies’ growth and user acquisition in real time. Affirm is a clear frontrunner here, according to data from SensorTower. It boasts nearly 2X more year-over-year growth in monthly app users than Stripe and Klarna.
Sensor Tower’s app usage data comes from the largest proprietary mobile app panel in the industry, which offers investors accurate and actionable market intelligence. Sensor Tower subsidiary Pathmatics collects data in the advertisement industry in order to give investors visibility into spend, impressions, share of voice, targeting, and buying strategies across social, display, video, mobile, and OTT.
DeepDive on Stripe
In April 2021, Stripe raised $600M at a $95B valuation. In the following months - leading up to what was one of the hottest planned IPOs of 2021 - their share price traded in secondary markets at a valuation of approximately $200B, according to private company pricing data from Caplight Data. So what drove these remarkable valuation increases?
Advertising data from Pathmatics shows an enormous rise in Stripe’s advertising spend throughout 2021 (see image below). Stripe app usage rose quickly at the same time - though it did not veer from its trendline and did not grow more quickly than its competitors, as seen previously. In other words, Stripe’s large advertising spend had limited impact on their customer base. This leads us to conclude that the real impact of the online advertising spend was to drum up interest in Stripe for the leadup to its IPO.
As economic activity comes online, new data trails are left behind. Innovative private equity investors leverage these new data sources to close the information gap in private markets. Data from companies including Thinknum, Sensortower, Similarweb, and Pathmatics helps investors throughout their investment process—from deal sourcing and origination, to due diligence and investment research, and even post-acquisition strategy.
Having all of this information in one platform, like Data Lagoon, can help investors blend different data sources for deeper analysis and more comprehensive research. This can provide actionable insights about a company’s performance and strategic goals.