Adit Ventures Q2 2021 Quarterly Letter

August 9,2021

Reports, ADIT-News, Q2-2021, Quarterly




“Without continual growth and progress, such words improvement, achievement, and success have no meaning."

- Benjamin Franklin

Record Quarter for Venture Capital:

Adit saw a record quarter in Q2’21, as did the venture capital ecosystem overall. Record amounts of investment, IPOs, M&A, and new capital raising means the virtuous cycle we seek in venture capital is functioning well and generating returns as we expected.

q2.1(From CB Insights: State of Venture Q2 ’21 Report[i])

Adit is pleased to report several milestones. Adit has returned nearly $500MM to our investor-partners as of Q2’21. We are honored to serve you in this regard. Our firm, now 15 professionals strong, continues to seek ways to provide robust returns by investing in quality growth companies led by great managers with character, integrity, and vision. Adit invests thematically, using long term secular trends as our touchstone. These trends continue to drive strong return across our portfolios.

With multiple back-to-back liquidity events, deliveries of reports, some share transfers, and key deliverables did not occur as quickly as in prior years. Adit has doubled staff and retained Carta to improve, remedy, and streamline these bottlenecks. Given Adit’s rapid growth in assets, liquidity events, and distributions we recognize the need to increase capacity to continue provide excellent service. I am pleased to announce Eric Lazear has joined Adit Ventures as our Chief Operating Officer. Bringing 20+ years of institutional experience, Eric will focus on improving & refining Adit’s investor-partner experience, in our own “digital transformation”. Please see Eric’s bio attached in the attachment link at the end. Expect more news on Adit’s growth as we develop better ways to manage, deliver, and communicate our reporting and returns.

Q2'21 Public Markets:

Public markets hit record highs in Q2’21, with the S&P 500 up 8.5% and NASDAQ Composite up 9.7%[ii]. The 10-year yield reached a recent high of 1.74% in March, and subsequently dropped 29 basis points by the end of the quarter—both moves spooked equity markets, interestingly enough[iii]. Equity sectors waxed & waned depending upon market sentiment. The cyclical, “reopening” names like autos, chemicals, energy, and materials shone in parts, while the defensive value names also gained ground. Despite recent quarters of underperformance, growth took back the lead from value stocks—with technology leading the charge in the large growth sector in part due to stronger than expected earnings[iv]. In US markets, volatility fell to its lowest level since 2019, steadied by the Fed signaling they will maintain interest rates into 2023[v]. Economic data remained strong as job creation, consumer spending in autos, housing and infrastructure growth drove estimated GDP growth of 7.8% for Q2’21[vi]. The IPO market had a landmark quarter, with 113 IPOs raising $39.9B, marking the “busiest quarter for IPOs in over two decades”[vii].

Adit investors benefitted from several of those liquidity events this quarter as shares of Palantir and AirBnB were distributed out. SoFi shares will be going out in July, bringing the market value of AGE and AGE III market distribution values (as a proportion of total capital invested) to 68% and 22% respectively, in our first several years of investment results—ranking us among the top-quartile per Cambridge Associates.


SPAC Market Overview and Outlook:

Adit Ventures remains active in the PIPE and SPAC marketplace. Overall, SPAC activity slowed (due to the accounting rule changes announced one day before annual 10-Q updates were due), after beginning the year at a record pace. These administrative disclosure issues effectively ground new issuance in the U.S. to a halt, as service providers across the ecosystem scrambled to amend & restate previous filings, as well as complete the requisite new filings. This backlog is now completed, and new issuance has begun again. Business combinations or “De-SPACing’s” continue apace. SPAC issuance in Asia & Europe is accelerating and Adit expects this trend to continue. SPACs are here to stay.

q2.3(From CB Insights: State of Venture Q2 ’21 Report[viii])

Adit remains confident that Adit EdTech Acquisition Corporation (NYSE: ADEX) and other quality SPACs with competent sponsors, will perform sound diligence and consummate accretive deals for shareholders. However, the EdTech sector has seen dramatic changes in valuation related to Chinese regulatory controls, diminishing the near-term attractiveness of these assets, particularly in Asia. Being opportunistic has been a hallmark of Adit’s investing and we remain vigilant in identifying great companies across all economic sectors to generate continued, robust returns for our clients.

Record M&A Activity:

Meanwhile, M&A activity outside of SPACs is approaching record territory as YTD exits have nearly eclipsed 2020—less than seven months into the year. Globally M&A activity had another record-breaking quarter with $1.5T of Q2’21 deals—in the United States, Q2 volumes were up 440% YoY with $699B worth of M&A deals[ix]. The confluence of corporate cash, SPACs, strategic buyers, and general liquidity seeking deals is driving this trend. Given these fundamental structural factors, Adit expects this trend to continue going into the second half of 2021 and well into the roaring 20’s decade ahead.

q2.4(From CB Insights: State of Venture Q2 ’21 Report[x])

Heightened M&A and the 431 SPACs with $117B searching for deals bodes well for equity owners like Adit and our investor-partners, as we are minority-shareholders of 38 businesses across all our funds[xi]. Several Adit portfolio companies have in fact seen accretive bids, and we will provide full details once these deals are finalized. The M&A process is difficult, as dynamic capital markets and corporate egos can create volatility in addition to normal day-to-day work stress. Nonetheless, Adit expects continued liquidity events across both early- and late-stage companies—put this into the “Quality Problem” category. We see at least three other events likely in the coming 6 months, with more likely to follow as activity remains high. This is a bountiful environment for Adit’s investment strategy.

Adit Invests Thematically Across Strategic Sectors:


FinTech companies had an especially busy quarter, as global FinTech funding reached a new high of $34B in Q2 ‘21. According to CB Insights, nearly one of every four (22%) dollars raised this quarter went into a FinTech deal[xii].

Adit’s FinTech theme is clearly working as investors eschew legacy financials in favor of their more dynamic, tech-equipped contemporaries. The public trading debuts of FinTech names like Coinbase, Marqeta, and UpStart reflected this exuberant demand, as shares popped 52%, 13%, and 47% on the first day, respectively[xiii]. Of course, this enthusiasm was not contained to the IPO market. Adit portfolio companies Forge, Klarna and SoFi have all seen material increases in value.

SoFi successfully completed its SPAC combination with IPOE—the fifth Chamath Palihapitiya SPAC vehicle[xiv], opening at a $17B market cap—up from Adit’s $4.7B entry point last year. We expect SoFi to return to the $15B+ valuation range once the share distribution is complete and quarterly earnings become the focus of the stock. Adit’s price target for SoFi in 2022 remains north of $35 per share. Please do not sell into the distribution softness in the share.

Klarna saw two large up rounds in the first half of 2021, raising $1.29B in April ($31B valuation) and then $639m in June ($45.8B valuation). Adit sees Klarna going public in a direct listing within 12 months from now, likely on NASDAQ or the NYSE. Valuations are difficult to predict, but Adit sees Klarna worth $100B by 23 based upon current, robust growth rates.


Forge raised $150MM at a valuation up 32% from the year prior and is likely to see a business combination in the second half of ’21. Overall, first half revenues are forecasted to grow 240% year-over-year, with strong positive cash flow & visibility for at least six months more of accelerating growth, based upon Adit’s analysis. As an indicator of the acceleration in business, Forge has processed $10B in transactions to date, with $3B occurring in the past 12 months. Adit has also seen this type of growth, having completed more business in than past six quarters than in the previous six years. Adit CIO Eric Munson spoke alongside Forge COO Jose Cobos on July 21st during TGV’s 56th Global Conference on the future of the private markets.

The last segment of FinTech yet to be disrupted is life insurance. Ethos has emerged as Adit’s pick to do so, as General Catalyst led a $200MM series D round in May, endowing the business with a $2B “unicorn” valuation following a 500% increase in annual revenues[xv]. Recently, Ethos added $100MM at a $2.7B+ for its big data platform as the attached article articulates for those looking to learn more about this exciting company. We expect Ethos to pursue a traditional IPO within 12-24 months at an $8B+ valuation.

Last but not least, Adit expects Robinhood Markets to list before the end of summer at a valuation greater than $40B. Robinhood’s S-1 implied that 50% of all brokerage accounts opened from 2016-2020 were opened on Robinhood, cementing the company’s role as the beginner’s brokerage app[xvi]. Controversy aside, such growth is impressive. Adit sees upside in this transaction going forward.


The EdTech market saw a similarly busy quarter, driven by a plethora of acquisitions and public listings. In the beginning of the quarter, we saw Coursera (NYSE: COUR), one of the world’s largest education technology platforms, make its public market debut, commanding a $7bn valuation on $290M in sales[xvii]. PowerSchool, a leading education software platform, filed an S-1 nearly a month later with ambitions of listing at a $3bn valuation[xviii]. Assuredly, this activity was not limited to the U.S: The public market debuts of Zhangman Education (NYSE: ZME), Thinkific (TSE: THNC), and Kahoot (OSL: KAHOT) reflected the public market’s affinity for alternative mediums of education. Furthermore, the rapid increase in EdTech activity indicates that online education is here to stay. The blockbuster merger between 2U and edX, a platform of over 30 million students globally, suggests future consolidation in the education technology marketplace[xix].

The current dynamics of the EdTech market present a fruitful environment for Adit’s EdTech theme: Esme Learning, a leader in the professional education marketplace, launched three new courses in Q2 ’21, with additional courses and academic partnerships to be announced in the second half of 2021. Adit remains ebullient about Esme Learning as we see dramatic growth in their business ahead. Stay tuned for strategic announcements about this dynamic leading-edge company very soon.

Chinese regulators have clamped down on Chinese education companies recently, depressing valuations across the globe. Adit remains optimistic that this long-term secular theme of digital learning remains intact despite near-term volatility. Adit takes a 3–5-year time horizon on all of its investments, as disruption—while challenging—also means opportunity.

Space & Internet of Things (IoT):

SpaceX added $1.16B in additional funding, valuing the company at over $78B, as they launched 11 missions, even taking Astrocast’s 5 nano satellites up last month[xx]. Adit remains very constructive on the outlook for space, and the space economy altogether. Astrocast is currently pursuing a direct listing on the EuroNext Growth in Oslo. Adit led the private round and is participating in the direct listing alongside strategic investors Airbus Ventures, Palantir Technologies, and Thuraya at an 150MM CHF valuation. Adit sees replacement costs of this asset at over 500MM CHF and believes public markets will recognize this fact in time. In addition, strategic buyers have expressed interest in the company. Please see our SpaceX and Astrocast letters in the attachment link at the end for more details on these exciting space names, as things are literally taking off! Adit makes no promises as to management achieving its objectives, because after all this is, in fact, rocket science. AGE, AGE III, and Genesis all own shares of Astrocast.

q2.6(Morgan Stanley Research, “Space: Investing in the Final Frontier)[xxi]

Health & Wellness:

Health and Wellness has also emerged as a salient theme of 2021, as the Covid-19 recovery has pushed many to assess the quality of their own personal health. Indeed, this trend has begun to materialize in Adit’s portfolio as we saw Noom raise $540MM on a $3.7B valuation in May[xxii]. Not long after, the company hired Goldman Sachs to advise them on a public listing, estimated to be in Q1 ’22 at a value three times our cost[xxiii]. Adit has also seen exciting developments and progress from other health & wellness names like Mend Together and Immunogenesis—more details to come.

Adit Genesis:

Our early-stage vehicle, Adit Genesis, is off to an incredible start and we are very optimistic about the portfolio’s prospects ahead. The fund has generated huge momentum, assembling a portfolio of 13 quality, high-growth companies in the first four months since the fund’s official launch. From the portfolio, we expect 6 “up rounds” in the second half of 2021 and two potential liquidity events. We will be sending out more information regarding AANIKA Biosciences, which is revolutionizing product tracking and tracing via microbial tags. Please read through the Genesis updates we added to the attachment link at the end to learn more about these exciting companies and the developments they have made in Q2’21. Adit Genesis’s next closing is 9/30/21.

Adit Growth Equity III Closing to New Investors, so do not miss investing in the next generation of technology. Adit encourages all investor-partners who have not yet invested in AGE III to consider giving us an indication of interest on the fund as it will be closing to new investors this quarter. Co-investment opportunities in AGE III will be available through 12/31/2021 in companies like Klarna, SpaceX, Flexport, and others.

Adit sees at least three more liquidity events in our growth portfolio likely in the next 12 months, with 3-6 more exits to follow within the subsequent 12 months as activity and liquidity levels remain high. Software businesses like Netskope (up Round +168% vs ’20 [xxiv]), Cohesity (up 50% from Q1 Employee Tender[xxv]) and Rubrik all are solid businesses with ample room for growth.

Adit remains bullish on our exited portfolio names Airbnb and Palantir. We expect Airbnb to reach $200 by year end and reach $230+ in 2022 as it benefits from being on the of core “reopening” plays that have yet to see the full recovery growth in business and overseas travel. Palantir continues to execute on its market opportunity, reaching ~50% revenue growth for Q1’21 with $151MM in Adjusted Free Cash Flow—we expect Palantir to trade back at $30 by year-end with a $40+ price target in 2022[xxvi]. Expect earnings in these great companies to be announced in August.

Outlook: 2H ‘21 & Into 2022:

Overall, economic fundamentals still appear robust. Employment, GDP, and other indicators see growing strength. Consumer spending has rebounded as autos, housing and leisure shows. The Fed and other central banks around the world continue to provide fiscal stimulus & loose monetary policy to promote economic activity. Capital markets are welcoming new public offerings, financing PIPE (Private Investments in Public Equities) transactions as a means of participating in this future growth.

Adit’s secular themes are solid with AI/Big Data, Cloud, Digital Healthcare, EdTech, FinTech, IoT, Leisure & Wellness, Media all are driving innovation globally. Rapidly increasing 5G conversion sales are driving capital expenditure across the telecommunications landscape, as Communication Services, CyberSecurity, HealthTech and Educational Technologies also contribute to this increase. Given these factors: decades-old, aging computers, mobile phones, and networks means the future is poised for a multi-year capital spending cycle on essential technology. Combined with government & private spending on infrastructure, Adit expects to see these longer-term spending plans to dampen any short-term volatility as the rapid consumer rebound continues. Adit has optimism for a multi-year expansion ahead, since this bull market really just began anew in 2020.

The Biden Administration’s $1.2T infrastructure bill served as another economic cornerstone of the second quarter. This bill, which follows nearly $5T in fiscal relief since March 2020, is geared towards alleviating the structural and productive deficiencies found across our domestic economy[xxvii]. Most notably, the White House has placed a strong emphasis on national defense, with $1.2bn specifically earmarked for border security and modernization[xxviii]. Adit believes this package rings bullish for Decision Sciences, as increased scrutiny on border infrastructure will accelerate the deployment of the company’s systems, propelling growth in both domestic and international markets.

Amidst the busiest quarter for IPOs came the largest Chinese listing on a U.S. exchange since Alibaba’s $25bn listing 2014. Indeed, Didi Chuxing’s $68bn debut on the NYSE commanded considerable demand, trading up as high as 19% intraday[xxix]. However, the subsequent drawdown in DiDi shares reflected the market’s uncertainty surrounding corporate governance in Chinese stocks, prompting investors to reevaluate their international equity exposure. Of course, this was not the first instance in which the Chinese Communist Party had meddled with a private business. In April, Chinese regulators halted what would have been the world’s largest IPO, as Ant Financial’s novel lending practices drew heightened scrutiny from party officials. The fallout from both Ant Financial and Didi Chuxing demonstrate the benefits of investing through a holistic, sustainable lens. That is, while enticing, new companies may tell stories underscored by mercurial growth, there is plenty of alpha to be captured through a disciplined investment process. Adit invests for growth with quality companies and top-tier management teams in opportunities without excessive regulation and restrictions.

Conclusion & Outlook:

The public market delivered a textbook rebound from the pandemic decline over the past 15 months. Government officials across all the globe collaborated on economic measures to aid in this ongoing recovery. Accommodative public policy was instrumental in directing the vaccination process, as over two billion people globally have received at least one dose, controlling the spread of the virus & variants to put the Covid-19 virus behind us as quickly as possible[xxx].

Companies continued to innovate amidst the pandemic, striving to serve new markets created by Covid-19 and evolving into a new economic paradigm. This massive digital transformation is clearly underway, accelerating, and promises to be amazing, despite the tragedy of Covid-19.

Inflation has returned, albeit transitory in the eyes of the Federal Reserve and the Bond Vigilantes thus far. Time will tell if wages creep upwards, which will ultimately dictate the likelihood of future price increases. Interest rates remain subdued and at historically low levels, now, and for the foreseeable future in all likelihood.

Future earnings forecasts within the S&P 500 remain below pre-pandemic levels. These forecasts measure market expectations, which are rising today, as seen by recent record highs across the stock indices. Adit believes that the earnings growth will be sufficient to balance this enthusiasm, so long as interest rates remain benign. We expect the private markets to continue to outperform the public markets with less volatility and better visibility. Adit sees continued strong performance results across both our early & late-stage private portfolio holdings. These are ideal conditions for our strategy to provide our investors meaningful returns ahead of both the public markets and our peer group. Despite the increased activity levels & workload, Team Adit is more confident than ever before that our philosophy, portfolio & process of investing will bear good results in both the quarters and years ahead.

Given the dynamic increase in the pace of innovation, combined with the behavioral changes driven by the pandemic, Adit sees many high conviction opportunities ahead. To capture these opportunities, Adit will be launching several new funds in the months ahead: Adit Global Growth, Adit Income & Opportuntiy, and Adit Impact. Keep an eye out for these materials along with our new white papers coming out next month, “EdTech 3.0” and “Blockchain, NFT, DeFi, — Oh My!”.

Please join me in welcoming Tim Creutz as the newest member of Adit Ventures’ investment team bringing 20+ years of experience in equity and credit markets—both public and private, as well as direct private equity deal origination and securitization knowledge. Details on Tim’s bio are included in the attachment link at the end.

Team Adit is deeply grateful for the opportunity to serve you & your families. Team Adit views referrals as the highest form of flattery. We appreciate you introducing us to your colleagues, family, and friends should they be interested in the private markets and Adit’s ideas. Our ecosystem of amazing companies, led by capable entrepreneurs, is changing the way we live our lives, and making the world a better place. As the famed investor Bernard Baruch said, “Become more humble as the market goes your way”. Adit remains humble and vigilant, seeking information as a means to continue driving returns across our portfolios for your benefit. Please feel free to reach out with any questions, at any time, to any member of Team Adit. Happy Investing & happy Summer.


Eric Munson & Team Adit

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 This presentation is provided for informational purposes only and is intended solely for the person to whom it is delivered. This presentation is strictly confidential and may not be reproduced or redistributed in whole or in part nor may its contents be disclosed to any other person without the express consent of Adit Ventures, LLC.

 This presentation is not an offer to purchase securities. Any offer to purchase securities is made to selected investors and must be made in accordance with all local and federal securities regulations, and by a private placement memorandum. All the information provided is deemed to be accurate and obtained from reliable sources. However, there can be no assurances that the information herein is correct. All investors should make their own investment decisions in conjunction with accountants, advisors and or counsel. Please refer to our Limited Partnership Agreement and Private Placement Memorandum for complete disclosure about each of our special purpose vehicles (each, the “Fund”). There is a risk supplement specific to each individual company which includes information on each of the emerging growth equities we invest in, outlining the issues facing the firms. All information herein reflects the opinions of Adit Ventures, LLC.

 The portfolio companies identified do not represent all of the investments made or recommended for the Fund. It should not be assumed that investments made in the future will be profitable or will equal the performance of the investments in this list. Past performance does not guarantee future results. Additional information, including (i) the calculation methodology; and (ii) a list showing the contribution of each investment to the Fund’s performance during the quarter will be provided upon request.

 In calculating targeted returns, Adit utilizes certain mathematical models that require specific inputs that, in some cases, are estimated, and certain assumptions that ultimately may not hold true with respect to any investment. These estimates and assumptions may cause actual realized returns to deviate materially from modelled expectations. These models, including the estimates and assumptions, are prepared at a specific point in time and reflect conditions at such time. The targeted returns are premised on a number of factors including, without limitation, the opportunities that the Adit investment team is currently seeing and/or expects to see in the future, which opportunities are uncertain and subject to numerous business, industry, market, regulatory, competitive and financial risks outside of Adit’s control. There can be no assurance that the assumptions made in connection with the targeted returns will prove accurate, and actual results may differ materially, including the possibility that an investor will lose some or all of its invested capital. No assurances can be made that targeted returns will correlate in any way to past results, and no representation is made that results similar to those shown can be achieved. The inclusion of the targeted returns herein should not be regarded as an indication that Adit considers the targeted returns to be a reliable prediction of future events, and the targeted returns should not be relied upon as such.

 Any projections, forecasts and estimates contained in this document are necessarily speculative in nature and are based upon certain assumptions. In addition, matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond the Fund’s control. No representations or warranties are made as to the accuracy of such forward-looking statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results. Accordingly, any projections are only estimates and actual results will differ and may vary substantially from the projections or estimates shown.

 Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there frequently are sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.

 One of the limitations of hypothetical performance results is that they generally are prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can account completely for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which also can adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance and all of which can adversely affect actual trading results.

 The graphs, charts and other visual aids are provided for informational purposes only. None of these graphs, charts or visual aids can of themselves be used to make investment decisions. No representation is made that these will assist any person in making investment decisions and no graph, chart or other visual aid can capture all factors and variables required in making such decisions.

 Notwithstanding the information presented herein, investors should understand that neither Adit nor the Fund will be limited with respect to the types of investment strategies they may employ or the markets or instruments in which they may invest, subject to any express terms or limitations, if any, set forth in the Offering Documents. No assurance can be given that any investment objectives discussed herein will be achieved.

 This presentation may contain certain opinions and “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” “outlook,” “forecast,” “plan” and other similar terms. All such opinions and forward-looking statements are conditional and are subject to various factors, including, without limitation, general and local economic conditions, in certain industries and markets, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors, any or all of which could cause l results to differ materially from projected results.

 References to market or composite indices, benchmarks, or other measures of relative market performance over a specified period of time are provided for information only. Reference or comparison to an index does not imply that the portfolio will be constructed in the same way as the index or achieve returns, volatility, or other results similar to the index.