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Accessing ‘Pure-Play’ Technological Innovation

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July 28th, 2023


Learning, Themes



“Never before in history has innovation offered the promise of so much to so many in so short a time.”

Bill Gates

As anybody who follows public equity markets will know, investors have exhibited an insatiable appetite for technology stocks so far in 2023 – it is not that equities per se have proved popular; it is more the case that a handful of stocks have dragged broader indexes higher. Many commentators attribute this lack of market breadth to a growing conviction among investors of the transformational potential of artificial intelligence (AI) and a desire to prosper from it.

However, what investors are failing to appreciate is that mature, listed, mega-cap tech stocks are not a particularly effective route to harnessing the potential of the latest technological innovation. A stock exchange listing places company management under the close scrutiny of major shareholders who typically demand ongoing value creation. While these companies have previously rewarded shareholders for their creativity and industry disruption, they typically continue to add incremental shareholder value by upselling services and increasing efficiency – they have disrupted their industry, but, arguably, they are no longer industry disruptors.

The unsustainable outperformance of mega-cap tech…

As mentioned above, mature publicly listed stocks can evolve from an industry disruptor to a services provider over time. This means that investors are not necessarily harnessing technological innovation, but buying shares in the entire business empire. For example, Microsoft shares provide exposure to the MS Office and Cloud services, rather than the technological innovation that created them. Clearly, rising demand for data storage should ensure that the Cloud generates growing revenues for years to come, but not the exponential growth associated with cutting-edge, technological innovation.

Similarly, the creative innovation behind Amazon is based on sourcing and logistics. Future growth is arguably contingent on increasing or optimizing its product range, subscriber growth, and harnessing AI to enhance logistical efficiency. However, Amazon shares are by no means a ‘pure play’ on AI that this year’s support implies – a significant component of the company’s ‘book value’ (assets) comprises commercial real estate.

Amazon was founded in July 1994 and launched its initial public offering (IPO), at a price of USD 18 per share, less than three years later. The shares soared so quickly that the company announced a 2-for-1 stock split just over a year after the IPO to make the price more readily investible - this was the first of four stock splits,  and an investment of USD 1000 at IPO would now be worth around USD 1.72 million. It is difficult to envisage how Amazon could justify future share-price growth of anything resembling that trajectory.

The obvious conclusion to draw concerning the outperformance of mega-cap tech is a ‘better-the-devil-you-know’ mentality among investors who believe that their choices are limited and are too lethargic to investigate further. It is also an easier decision for many to buy into a rising market than seek more attractively priced options offering a much purer play on technological innovation. These opportunities can only be effectively accessed through private markets, where venture-backed, growth-equity companies have already established a firm and disruptive foothold. Yet, as the chart below illustrates, these pioneers have been largely overlooked as the hot money has chased their venerable, publicly listed counterparts.

Source: Stableton and Bloomberg (03.01.23 – 30.06.23) *Morningstar® PitchBook® Unicorn Select 20 IndexTM

For context, the Morningstar® PitchBook® Unicorn Select 20 IndexTM is an equally weighted gauge of the 20 largest private market, growth-equity companies. These are firmly established businesses that continue to grow at a rapid pace not typically associated with publicly listed companies. Many of these ‘unicorns’ have a heritage of at least 10 years, and all have post-money valuations in excess of USD 10 billion.

Technological innovation in action…

The following two case studies provide excellent examples of where an individual investment can be targeted at a much purer play on the technological innovation that continues to drive the growth of the enterprise at this stage of its evolution.

One of the largest unicorn index constituents is Australia-based Canva. The company operates a global, multi-national graphic platform, which can be used to create beautiful business or social media graphics and presentations. Founded in 2012, Canva has developed a new AI-powered offering called ‘Magic Design’, featuring no fewer than 11 distinct AI-powered tools. These allow users to get help not only with generating the design and layout of decks, but also with crafting the content.

Amid continuing economic uncertainty, where headcounts are frozen or shrinking, and teams are forced to do more with less, Canva’s features are particularly appealing and provide a great way to drive product-led growth on a restricted budget. Canva’s business model is purely based on the exponential growth potential and further development of its subscriber-based AI offering.

Philadelphia-based goPuff is an American consumer goods and food delivery company operating in over 650 US cities through approximately 500 microfulfillment centers. It also operates in the UK, following the 2021 acquisition of Newcastle upon Tyne-based Fancy. goPuff is considered an innovator for its fast delivery by virtue of artificial intelligence (AI) and machine learning. The company finds cheap warehouses in markets where it wishes to grow and sets up shop there. It then uses an in-house AI-powered system that maps out routes for drivers so that they can deliver the most products to the most locations in the most efficient way possible.

The AI-powered nature of goPuff’s business model provides the potential for continued rapid expansion in new markets and geographies, as well as acquisition-based growth through the takeover of its less efficient rivals.

Where next?

With publicly listed tech stocks rebounding strongly in 2023, the recovery is expected to shift to private markets, where the potential to benefit from purer AI plays really lies.  So, as an investor, would you prefer to invest in the established behemoth, Apple, or the company that invented the technology behind Apple’s latest ‘Vision-Pro’ product push – the generative AI company behind the concept of the spatial computer headset?


Growth equity positions, secondaries in particular. show a significant dislocation in valuations due to an overcorrection and a lack of participation in the recent rally, especially given their greater exposure to the tech themes that investors really covet. These positions are not just more closely aligned with the themes that investors are striving to access but far more competitively priced


The valuation gap is the largest observed in the last 10 years. Many megatrends (e.g. AI) are more readily accessible via private markets, and, with more expected IPOs and multiple expansion, the valuation spread is starting to converge. This suggests we have already entered the sweet spot for timely entry into private markets in the current cycle, particularly for those anxious to align their investments to the transformative technologies that will reshape all our future tomorrows.

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