This is not a Bitcoin ETF.
Nor is it a leveraged ETF.
Neither does it employ any esoteric strategies.
It’s an ETF that invests in promising tech unicorns still in the private sector.
The portfolio includes a stake in Elon Musk’s SpaceX, along with investments in Epic Games, OpenAI, Discord, Stripe, and more.
Typically, only venture capital (VC) funds have access to such investments, and only high net worth individuals can participate in these funds. As a result, retail investors have been completely excluded, despite being regular readers of news about companies like SpaceX and OpenAI.
Therefore, it’s understandable why there’s so much excitement around this ETF. There’s only one such ETF versus the overwhelming demand propelled the ETF’s price to increase tenfold in just 15 days.
This ETF is Destiny Tech100 with the ticker DXYZ.
Named for its goal to include 100 of the world’s leading venture-backed private technology companies, it presently comprises 23 firms.
DXYZ’s origins trace back to Forge Global, a platform that enables the trading of private company shares among investors. Listed on the NYSE under the ticker FRGE, Forge first ventured into creating a spin-off fund in 2018, independent of its main operations. By the end of the third quarter in 2019, the EQUIAM Tech30 Fund had been successfully invested in over 30 top private companies of that time, including Snowflake, Airbnb, Robinhood, Doordash, SpaceX, Unity, Opendoor, Lemonade, and Palantir. Many of these companies have since entered the public market.
Forge wanted to push the envelope further by democratizing access to private technology companies. This approach is relatively unique; most entities opt to establish traditional VC funds or Special Purpose Vehicles (SPVs) due to fewer disclosure requirements, lower administration costs, and the potential to earn higher fees, typically including a 20% performance fee. Conversely, DXYZ eschews performance fees, charging an annual fee of 2.5%—steep by ETF standards but on par with VC industry norms.
The Destiny Tech100 ETF is indeed a groundbreaking offering, providing retail investors with a rare opportunity to invest in some of the most significant yet privately held technology companies.
However, its valuation raises eyebrows. With a net asset value (NAV) of $52.6 billion as of December 31, 2023, and with 12,335,181 shares outstanding, the NAV per share is approximately $4.27. Yet, the ETF’s trading price nearing $100 implies it is valued at almost 23 times its NAV. While DXYZ may warrant a premium due to its exclusive access, such a marked overvaluation is difficult to justify.
As a closed-end fund, Destiny Tech100 does not accrue additional funds even as its ETF price increases. Instead, the fund’s value is determined by the performance of its underlying investments, and not the ETF’s returns. In other words, the NAV won’t increase until the underlying investments get valued higher. Even so, private market valuations can be iffy. So we are talking about a large degree of pricing uncertainties here.
It might be wise to wait for the market to stabilize and establish a more rational norm for the ETF’s valuation, especially when this initial hype has subsided and a clearer and stable market premium emerges for DXYZ.
