Forge Global Holdings, Inc. (FRGE) Q2 2023 Earnings Call Transcript

Forge Global Holdings, Inc. (NYSE:FRGE) Q2 2023 Earnings Conference Call August 8, 2023 5:00 PM ET

Company Participants

Dominic Paschel – Investor Relations

Kelly Rodrigues – Chief Executive Officer

Mark Lee – Chief Financial Officer

Conference Call Participants

Owen Lau – Oppenheimer

Jeffrey Schmitt – William Blair

Devin Ryan – JMP Securities

Ken Worthington – JPMorgan

Operator

Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Forge Global Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] Thank you.

Dominic Paschel, you may begin your conference.

Dominic Paschel

Thank you, Emma and thank you all for joining us today for Forge’s second quarter 2023 earnings call. Joining me today are Kelly Rodrigues, Forge’s CEO; and Mark Lee, Forge’s CFO. They will share prepared remarks regarding the quarter’s results and they will take your questions at the end. Just after market close today, we issued a press release announcing Forge’s second quarter 2023 financial results. A discussion of our results today is complementary to the press release which is available on the IR page of forge.com. This conference call is being webcast live and will be available for 30 days to replay. Beginning about 1 hour after the conclusion of this call, there will also be an accompanying investor supplemental PDF on our IR page.

During this conference call, we may make forward-looking statements based on current expectations, forecasts and projections as of today’s date. Any forward-looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those included in the statements. We discuss these factors in our SEC filings, including our quarterly report on Form 10-Q which came out a few minutes ago. As a reminder, we are not required to update our forward-looking statements. In our presentation today, unless otherwise noted, we will be discussing adjusted financial measures which are non-GAAP measures that we believe are meaningful when evaluating Forge’s performance. For detailed disclosures on these measures and GAAP reconciliations, you should refer to the financial data contained within our press release which is also posted on the IR page. Additionally, we have posted our second quarter supplemental information on the same page, as I mentioned. Today’s discussion will focus on the second quarter of 2023. As always, we encourage you to evaluate both the annual and quarterly results for a full picture of Forge’s performance.

With that, I’ll turn it over to Kelly.

Kelly Rodrigues

Thank you, Dom and everybody, for joining. Just like in past quarters, we’ll talk about some of the highlights from Q2 and then Mark will give you a deeper dive into our financials in the quarter. We’ll close with some insight into how the private market asset class is performing. But first, just a quick reminder of why Forge’s is here and what we’re trying to do.

There is an inevitable opportunity before us. Thousands of technology companies with the potential for high growth are heads down right now, solving some of the world’s most challenging problems. They are creating the technologies of tomorrow, artificial intelligence and satellite networks and rockets to Mars and the food made from air. Technologies that are helping cure or prevent disease and that are changing the way we work and how efficiently and effectively all of us do our jobs. These disruptive technologies take time to create. And investors aren’t just clamoring for exposure to these world-changing companies. They want regular access. They want to dedicate portions of their total portfolios. They want to participate in wholly new financial products that track private market performance. Forge was created at the center of all those ones and opaque, inefficient and illiquid market to bring our only disruptive technology to bear, to transform the private market.

And even through challenging market conditions over the past cycle, we’ve made progress in doing the difficult work to push this asset class forward. Through our data, investors, including institutions have new information and new access to insights that are helping them time their market reentry and plan for the long term.

The Forge Private Market Index which tracks the performance of the 75 most liquid names in the private market is providing new insights and transparency. It is the blueprint on which new innovations are possible and on which new financial products will be built. We’ve worked to position Forge at the center of the private market ecosystem. With the technology, data, expertise and network, it will allow us to capture more of the pent-up demand from existing and wholly new audiences as private market activity continues to expand and as the market continues to reset.

So with that, let’s get into some of the financial and business highlights from the second quarter. In Q2, Forge’s total revenue less transaction-based expenses was up 8% to $16.6 million from $15.5 million in Q1. Placement fee revenue, less transaction-based expenses for Forge in Q2 improved for the first time in 6 quarters, up 22% to $5.6 million compared to Q1. This was due to slightly improving market conditions that benefited our markets business. And while we cannot predict the future, we view this as a positive indicator that the private markets may have troughed. We’ll need to see more of a trend before drawing absolute conclusions.

Another encouraging indicator was the rise in transaction volume which increased 20% to $153.2 million in Q2, Forge’s adjusted EBITDA loss narrowed in the second quarter to $11.8 million, better than last quarter’s loss of $13 million and a $12.3 million loss in Q2 last year. This reflects revenue growth and a disciplined and deliberate cost management strategy, including intentional cost cutting enacted in prior quarters. This cost discipline has extended into the third quarter. And we’re reiterating our commitment to lowering our burn for ’23 and for 2024. Mark will talk more about this in his section.

Custody administration fees for the seventh straight quarter continued to rise to $11 million in Q2, benefiting again from the higher interest rate environment. In addition to our financial highlights for the quarter, Forge was added to the Russell 2000 as part of the index’s annual reconstitution which helps to validate our business as a category leader.

Finally, in our ongoing effort to drive deeper engagement and provide more value to institutional investors, in July, we launched the Forge investment outlook. This is a new quarterly content franchise from Forge that contains institutional-grade research designed to help the most advanced investors understand and go deeper into this market. It demonstrates the new level of transparency we’re bringing to the private market and showcases data that we believe shed new light on private market performance.

With that, let me turn it over to Mark.

Mark Lee

Thank you, Kelly. In Q2, Forge’s total revenue less transaction-based expenses totaled $16.6 million, up 8% from $15.5 million last quarter. This increase was largely driven by placement fee revenue. Total placement fee revenues, less transaction-based expenses reached $5.6 million, up 22% from $4.6 million last quarter.

Transaction volume for the quarter increased 20% to $153.2 million in Q2, while our overall net take rate increased from 3.6% last quarter to 3.7% in Q2 which is slightly higher than our historical averages. Total custodial administration fees rose 1% in Q2 to $11 million, up from $10.8 million last quarter and up 93% year-over-year. Our custodial business continues to provide stability and balance to our revenue streams, particularly through uncertain macroeconomic periods.

Forge’s custodial cash balances totaled $550 million at the end of Q2, down from $574 million at the end of last quarter. We believe this decline was primarily driven by cash sorting and search for yield. This decrease was more than offset by the increase in the Fed funds rate and our cash administration fees.

Total company accounts totaled $2 million in Q2, essentially flat from last quarter. Assets under custody were $15.3 billion at the end of Q2 versus $14.8 billion last quarter, an increase of 3%. Total headcount was 358 at the end of June. Kelly highlighted our commitment to reducing our burn rate. And as such, further cost reduction actions were taken in the current third quarter, bringing headcount down to 339, down from 349 at the start of the year.

Second quarter net loss increased to $25.1 million compared to $21.3 million last quarter. This change has driven an increase of $6.4 million in noncash expense going from $9.7 million in Q1 to $16.2 million in Q2. This includes share-based compensation and an increase in the fair value of our warrant liabilities due to a rising share price. In the second quarter, adjusted EBITDA loss improved to $11.8 million compared to a loss of $13 million last quarter, driven by improved revenues and tight cost controls.

Net cash used in operating activities was $13.6 million in the quarter. An improvement compared to net cash used in operating activities of $17.7 million last quarter. As a reminder, the first half of our fiscal years include timing-driven cash flows, such as payout of our annual bonuses and payment of annual corporate insurance premiums which will not recur in the second half of 2023.

Our corporate cash and cash equivalents, including term deposits in excess of 90 days ended the quarter at approximately $162.2 million compared to $175.3 million last quarter. From a housekeeping perspective, our weighted average basic number of shares used to compute net loss of 173 million shares and our fully diluted outstanding share count as of June 30 was 199 million shares. For Q3, we estimate 173 million weighted average basic common shares for EPS modeling purposes.

Historically, there is an inherent summer seasonality which tends to result in lower third quarter trading volumes similar to what you see across Wall Street. However, based on the visibility that we have at this point in the quarter, we believe third quarter volume will equal or slightly exceed that of Q2 which is a positive indicator relative to historic trends.

So in summary, we continue to monitor the state of the markets and actively manage our cost structure. Forge remains committed to lowering our overall use of cash in 2023 and to being the stewards of our capital.

I’ll hand it back to Kelly for a brief private market overview before we turn it over for questions.

Kelly Rodrigues

Thank you. Thank you, Mark. As Mark said, we’ll continue to monitor costs. We’re on track with our commitment to lower our cash use and have taken intentional and thoughtful measures to reduce costs as we remain focused on lean growth. Meanwhile, there are reasons to feel encouraged that the market may be warming. For example, we closed 46% more trades in Q2 than in Q1 and the number of issues we transacted in was up by 25% quarter-over-quarter.

Looking at the overall market trends, we believe the market is working through what we call the great reset, a mass revaluation that is pressuring companies to adopt lean growth and prioritize profitability. In this era of the great reset, our data is showing the company’s valuations today are closer to their second to last funding round and to their most recent funding rounds. In our Q2 private market update, we reported that median trade prices for companies trading on the Forge’s platform imply valuations 5% below the company’s second to last primary funding rounds at about 51% below their most recent funding rounds.

Some companies have recognized this valuation reset publicly, writing down their valuations to set investor expectations and prepare for their next capital raise or exit. For many others, that recognition won’t come unless and until they need to raise a new round of primary funds. Many companies continue to delay new primary rounds but as the time stamp between their last primary extends to an average of 20 months, the pent-up demand for liquidity from employees and investors only grows.

While still only a handful of unicorns have weighted on the public market waters. The reception for those who have has demonstrated enthusiastic investor demand for public investment opportunities which could encourage more large unicorns to seek public exits. Investors have in past cycles shown they are motivated by signs of intending exits to get into the private market to invest early.

The Wall Street Journal headline recently on July 24 captures that sentiment, we are feeling, “FOMO Drives Investors as IPO Market Awakens From Long Slumber.” Signs that investors have worried about missing the bottom are good for Forge even as the lead lag in the private versus public market persists. And while we guided positive momentum in some of the major public indices, the Forge private market index is down 17% for the year through the end of Q2. However, to the 3-month period ending in July, the Forge private market index remained flat. That’s the first 3-month period where the index performance did not decline since the market turned at the beginning of 2022.

We’ve also noted a narrowing of the bid-ask spread on the Forge platform from 30% in April to between 17% and 18% in May and June. Through the end of July, we saw the bid-ask spread narrowed further to 15%. That’s a positive signal that buyers and sellers are getting closer on price and perhaps that some investors believe they’ve reached the bottom. We’ve also seen elevated right of first refusal or ROFR rates continue, meaning, existing investors in these companies are seeing prices that sellers are agreeing to as attractive.

In closing, we are feeling some momentum in the interest and activity on the platform. And as Mark mentioned, based on what we can see so far in the quarter, we expect third quarter markets results to come in on par or better than the second quarter. As the market reawakens, we are continuing to invest in our disruptive technology and data offerings and to exercise lean growth as we look forward to continuing our positive momentum.

Thank you and back to Dom.

Dominic Paschel

Yes. Thank you, Kelly. With that, Emma, can we please open to questions from the line.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Owen Lau with Oppenheimer.

Owen Lau

So for public markets, I think many people or some people would say we have passed the worst time for private markets. Kelly, you just mentioned that the private market has probably troughed but you still have some reservations. So what are the potential wildcards that can derail this trend?

Kelly Rodrigues

I’m sorry, could you repeat what are the potential, what?

Owen Lau

Like potential like reasons that can derail this trend? Any potential reason that you would see these recovery may not materialize.

Kelly Rodrigues

Well, I’ll start and Mark, you can jump in. I mean I think what we’ve been watching for the last 1.5 years are big macroeconomic trends in the world and we’ll continue to watch those. But clearly, the private markets take longer. And so what I think you’re seeing is you’re seeing the reaction finally coming to the private markets that have been present in public pricing in public markets for a while. So I can’t say anything specifically jumps out at me. I’d say the only other factor is this delay in fundraising. I think companies are continuing to delay their next capital round until they see performance improve and probably some degree of recovery. And I say the irony is that until they start fundraising and those marks start hitting the street, that will continue to keep things running at a pace that may not be as quickly as the public markets. But I’ll let Mark comment on this one, too.

Mark Lee

Yes. Owen, I think it’s pretty much kind of the comments on the variables that we described in the call, right? We are seeing signs of improvement. We’re seeing the spread narrow in the private markets, right? We’re seeing the performance of private companies as expressed through the Forge private market index start to flatten. I think the fact that the — there has been a recovery. When I looked at the stats was the public indices through last Friday, not counting yesterday and today, the Q2Qs were up 41%. NASDAQ was up 34%, S&P up 17%, Russell 2,000, up 12%. So when you look at the disparity in investment performance and the lag between the public and private markets, the private markets, as measured by our index down 17% this year, so flat for the last 3 quarters. I think that represents an opportunity. And as long as the public markets don’t slide back that lag could potentially be an opportunity for people who have the willingness to kind of invest in the private market. And even though, of course, it’s a less liquid market and the public side.

So I think we’re seeing the right positive signs and it’s a question of how the market is continuing to return to normality, whether that’s, as Kelly said, kind of companies starting to get back into the IPO market and companies starting to do their next funding round, right? And those will all be kind of continuing signs of improvement that will support the growth of our business.

Owen Lau

Got it. I think this is very helpful. And then in terms of valuation, I think you mentioned the medium discount to the most funding rounds, into the second most funding round shrunk in the second quarter compared to the first quarter. Could you please talk about how much of that shrinkage is driven by like the valuation of AI companies? And do you see any sign that this trend, like these increased valuation has broadened out to other companies outside of AI companies?

Kelly Rodrigues

So now — I mean, AI is definitely the sector of the moment. But we don’t see valuations overall being driven by AI companies at this point. I think we’re probably talking more about companies that are raising capital, having more to do, companies raising capital in the last 3 to 6 months having more to do with valuations improving. And just the overall macro environment finally getting people comfortable to come back into the market. But we’re still early. And part of what I’ve been commenting on in the press about the great reset has to do with the fact that we’re at the beginning stages of it. I think we’ve got a fairly small percentage of companies that have traded in the last 3 to 6 months that have raised new rounds. It’s still relatively early in the great reset. So this will play out, I think, over the next 1 to 3 quarters. So we’ll continue to watch it. But AI is exciting. Certainly, there’s a lot of interest in it. It’s just not affecting overall valuations as much as you might think.

Mark Lee

Owen, if I could add one more thing. Hopefully, you’ve had a chance to read the Forge investment outlook which we published recently. I would refer you to that publication on Page 9, we actually break out the Forge private market index across sectors. So when you’re asking a question specifically about what parts of the index or the market are performing. Actually, we specifically on that page show you the Q2 returns of the different sectors embedded within our index. So we break out enterprise software, Fintech, consumer and lifestyle industrials, food tech, transportation, health care, education and real estate. And you can see on that page, kind of the dispersion and the average returns for each of those subsectors within our overall index. So I think that would go a long way to giving you and other readers and investors kind of insights into what we’re seeing across sectors and companies.

Operator

Your next question comes from the line of Jeffrey Schmitt with William Blair.

Jeffrey Schmitt

So as you continue to build out the data platform and continue to add products and capabilities there, how does growth of that segment look? And when might you start breaking that out separately?

Kelly Rodrigues

Well, at this point, we feel like we’ve reached pretty good product market share. I mean it’s been about 1.5 years since we brought it out. And we don’t want to make any forward statements committing to when we’re going to do it. But as we look into the rest of ’23 and ’24, we’re certainly looking at how our organization is set up to go out and expand but we’ve already begun to put more marketing emphasis and more of our messaging emphasis, as you can hear on data and the index. So not making any specific commitments but we are looking at 2024 and to continue to make that one of our top 2 investment priorities.

Jeffrey Schmitt

Okay. Go ahead, Mark.

Mark Lee

Sorry, Jeff. I was just going to — as a reminder, we didn’t close our annual bookings at the end of the year and at a minimum, our intent would be to disclose our annual data bookings each year on an annual basis.

Kelly Rodrigues

Yes. And at the end of the year, that was $1.2 million, up from $200,000.

Jeffrey Schmitt

Got it. Okay. And then transaction volume was up nicely in the quarter but looking at volume per trade, it seemed to be down a fair amount. So was there sort of a mix shift there to more retail investors trading on the platform in the quarter? And did that drive the take rate up at all?

Kelly Rodrigues

Yes. Yes. It’s a great observation, Jeff. So I mean, just in terms of kind of the pure actual numbers, we did do a fewer amount of large block rates. We measure that in terms of trades over $5 million. And so we did fewer large blocks but obviously, the positive was, we did a significantly more number of smaller trades. And as you pointed out, that drove up our overall take rate. And so that 3.7% take rate compares to the average of 3.3% for full year 2022 and 2021. So it was a quarter where it was more dominated by smaller trades. Although early into Q3, we are seeing our average trade sale starts to pick up again. So that is something that, as we’ve talked about in the past, that mix of business will affect our overall take rates and avert trade sizes.

Operator

Your next question comes from the line of Devin Ryan with JMP Securities.

Devin Ryan

A couple of questions just on the outlook and good to get all the color from you guys and your outlook report as well. So good to see some of the building evidence around the recovery. I guess the first question is, what do you guys think a recovery really looks like? We’re obviously kind of troughing or feels like it and starting a recovery. But do you see kind of a level of pent-up demand to TranZact that maybe we get to a point where there’s a little bit of a cold spring once there is a higher degree of confidence and maybe equilibrium between buyers and sellers and just trying to think about maybe that’s when the IPO window opens and that will be the catalyst to really kind of drive that quote spring? Or if we’re not thinking about it the right way, do you just feel like this is going to be a steady drive higher over the next couple of years to the extent we are recovering? I love to just get a little flavor for how you guys are thinking about it.

Kelly Rodrigues

Yes. So the data would suggest that there’s pent-up demand and we’ve been watching the data for several quarters. But at the same time, we’re hopeful we’ve been really careful about cost control and in particular, making sure that we’re running the business in a manner that assumes it’s not going to come back in the kind of return to 2021 volume and evaluation. So I’d say we’re watching it. We’re optimistic with the bid-ask spread data that you’re starting to see now on the platform that we reported on and just the pure numbers of IOI that have been elevated for quite a while, we are expecting some degree of recovery. We’re just not going to expect it to become charging back but we’re going to manage with modesty. And I’d say one of the things that we’re looking at is our pipeline, it really gives us a pretty good view into sort of the next 6 weeks. And those are improving. And that’s part of the reason why we made the comments about Q3 because they can see that the pipeline has steadily improved from the beginning of the year until now. So I guess I’d say and I’ll let Mark comment further. My expectation is that the pipeline will continue to improve at the rate that it has been improving which is encouraging but that would indicate that the recovery will take a while. Mark.

Mark Lee

Devin, I think I would add that, I mean, I think you are spot on from a macro standpoint, seeing IPOs come back in the market, seeing successful public company exits for privates. It will be an important factor. I think as Kelly mentioned, the great reset has seen more private companies do that next funding round and reset the primary evaluation. That will be another kind of validating of the new normal and the new valuations for private companies. On a more micro level, I mean, we continue to see record levels of sellers, both in terms of number of sell side IOIs, as well as represented by the number of issuers which have some interest on our platform. And there’s still a relatively steady balance but we do see some slight improvement in terms of the mix of buy-side versus sell-side IOIs. We have been talking about that last quarter about roughly 2/3 to 1/3 ratio between sell side to life side IOI is coming in. And that ratio now is more closer to 60-40. So some improvement. I mean, we would want to see that start to get back towards a more normalized 50-50 ratio between buy and sell side IOIs but we are seeing some incremental improvement.

And then kind of last point, if you have had the chance to read the investment outlook which I’m plugging again, we do point out that in terms of the number of companies which had exercised their ROFR, that increased in Q2 to 25% of all issuers that we traded exercised at least on ROFR and that’s an increase from prior quarters and at the highest level in terms of number of issuers which had a ROFR in the quarter. That’s the highest percentage in over 2 years. So I think that when you combine that with the disparity we talked about between public performance in 2023 in private markets. I think that valuation as supported by the increased percentage of issuers exercising their ROFR rate kind of tells you that we’re getting to the point where the opportunity to invest in the private companies looks awfully attractive.

Devin Ryan

Okay. Really helpful. And then somewhat related but I think the framework here is that 2021 was kind of a special environment just for risk appetite and valuations and that we may not be in that type of environment for some period of time. However, there’s a secular growth aspect to the market that you’re in and the maturation of the market. So we don’t necessarily need to be in the 2021 market for volumes to be much higher, Forge to be more successful. I think that’s at least part of our thesis. So I’d love to just maybe hit on, if you can, some of the anecdotes around just progress that you’re having just further developing the market and standardizing the market with companies that are trading on Forge so that when we get into maybe a more “normal” environment, there’s just a lot more activity on Forge in your market share is also greater. Just trying to think about kind of some of the things you guys are still doing behind the scenes that maybe isn’t becoming evident yet just because we’re in this kind of trough in the private market.

Kelly Rodrigues

First of all, there are more companies than ever that are coming to the same conclusion that the thesis that built the company was based upon which is staying private longer to build a world-changing business has different capital and liquidity needs than what was previously the case when companies were going public in 5 to 7 years. I’d say there is an anecdotal sentiment that runs through a lot of the newer unicorns that liquidity, secondary access is part of the natural life of a private company. And so we continue to see support much greater than we saw when Mark and I were part of this 5 years ago from companies accepting that.

And so what I guess, if I look back to 2021, a lot of that volume was driven by the big IPOs that happened in 2021. So in a world where we get back to sort of normalized IPO, then yes, we will benefit from that as well as a broadening level of participation by companies, not just in the U.S. but globally. And I guess to my — some of my comments I made today and part of the reason why we’ve got this index is because we believe there are new products that will come to market that will allow a much broader group of people that aren’t just buying for a flip or buying for a hard access company to have a more mainstream position in people’s portfolios. And so we see a whole set of other factors that are driving the future that are now starting to present themselves now. It’s one of the reasons why data and the index is such a significant part of our strategy.

Said another way, we don’t need another 2021, where we’ve got nosebleed valuations that are unsustainable in order to have the success and the expansion of the overall market. And so we’re really excited about the overall maturity of the market. We’ve been in a tough macroeconomic time. It’s seemingly calming down but we’ve got a little ways to go but there’s a — we’re still so early in the market that I’m really excited about the TAM potential that others are coming to see the same things we are. But I’ll let Mark speak on any of the specific data points you’d like to set up.

Mark Lee

Yes. No, look, I think I would just reiterate, Devin, this last, obviously, 18 months has been kind of a very different and challenging market environment. But at the same time, you’ve seen Forge will allow the data products, right, lending capability, open up international operations and then roll out an index. So we’re continuing to try to find that balance between managing our costs carefully, reducing our burn but also investing for the future. So I do think that comparing where we are now in terms of our products and services and our footprint and our capabilities to where we were back in 2021, we’ve continued to make good progress. We’re just doing it in a very difficult market environment.

Kelly Rodrigues

I’ll add one more thing and that is that while this cycle’s been tough, we’ve continued to have a significant part of our organization focused on building scalable, highly automated and sort of the market infrastructure that’s core to the next phase of the market. And while we’re not ready to talk about some of the specifics there, you can bet that we use this last 18 months in the background while the market has been dislocated to continue to make those investments. And we think when they do surface and we do bring them out, the benefit of that is the overall market in terms of scalability and efficiency will be obvious. So stay tuned.

Devin Ryan

Yes. That’s all great color. If I could just squeeze one quick one in here just to follow up to an earlier question just on the volume per trade trends and I appreciate some of my color there and then also kind of the quarter-to-date, what you’re seeing. Just at a kind of higher level, should we expect that you should see kind of a recovery just along with greater volumes and kind of normalization in the market and valuations over time or like just — I don’t know if there’s more of a mix shift dynamic here that may make that hard to predict for us on the outside? Just any kind of thought on like what volume per trade kind of looks like normalizing in a normal activity market? Is there more uplift from here? Or is it really just simply the mix of transactions?

Mark Lee

Yes. Devin, my general thought on that is that what we’ve seen in the last 6 quarters have been really a huge expansion of the number of sellers which particularly tend to be kind of the employees, the founders of the company some more individual sellers and what’s been lacking is obviously a deficit kind of institutional buyers. And so I do think that as things normalize over time that you would see the institutional buyer come back in. And then as that buyer comes back in the average trade size would start to go up again. So I think in general, that’s how we see it playing out over time as our markets recover.

Now one contrast to that is as we continue to automate and improve the efficient — overall efficiency of the process, our goal is to expand kind of the smaller trades that we can accommodate to bring down our minimums from $100,000 to $50,000, $25,000, so people can transact in a small size so that we can accommodate the institutional investor who wants to trade in size as well as the individual investor who wants to buy smaller lots. And so I think those would be the 2 offsetting factors. Institutions is coming back into to invest, raise our trade size by expanding and improving our tax and create more efficiency, should lower our average trade size as we can start to trade even smaller-sized market cap private companies.

Operator

[Operator Instructions]

Dominic Paschel

Thank you, Emma. I think we’re in — so I think we’re good to go.

Operator

We do have one last call.

Dominic Paschel

Oh, okay. Sorry.

Operator

Your last question comes from the line of Ken Worthington with JPMorgan.

Ken Worthington

Maybe first on headcount. I think headcount was up 6% this quarter from the March quarter. I think you said in the prepared remarks, it was down maybe 3% so far this quarter. So can you talk a little bit about what positions are being filled here? Where are you finding the opportunities for the headcount efficiency? And how does this all sort of fit into the good number of initiatives you have building out Europe, building out data, building out indexes and trying to kind of keep headcount capped?

Mark Lee

Yes. Let me add a few comments and then Kelly can chime in. I mean to and you hit all the right points here. I mean it’s a bounce met for us, right, of trying to maintain focus on our key strategic priorities while at the same time, trying to manage our overall expense footprint relative to our revenues in each quarter. And so to recap, I mean, we started the year with 349 employees, right? It dropped down. We took actions in Q1 the broader headcount down to 339. During Q2, our head count expanded back up to 359 as a combination of some key strategic hires backfills and continue to build out our technology team. And our numbers will fluctuate from quarter-to-quarter, right? So the amount of turnover and critical hires and backfills will always vary.

But generally speaking, as we’ve discussed before, right, we’re in a hiring. We’re working to maintain our head count. And so the numbers went from 349 down to 339, back up to 358 at the end of Q2. And as I said during the call, with actions taken in July, the headcount now is back down to the 339. So we’re still below where we started the year and we are trying to actively manage kind of those competing priorities and our strategic for us and try to figure out where we can add and where we can subtract.

Ken Worthington

Okay. That makes sense.

Kelly Rodrigues

Yes. I’d add that the composition focus has either been in specific areas of engineering that underlie our institutional and our data focus or specific areas of go-to-market where we need institutional or segment expertise that really line up with those services that we’re focusing on. So it’s really a game of bringing in very specific kind of talent and making sure we’re mindful about where we’re reducing so as to not sacrifice those priorities. That’s really the fine-tuning on the instrument panel that we’re trying to offering here in this environment. So I appreciate the question. I think it’s something that should be known by our investors and prospective investors that we really are trying to line up the precious resources underneath the strategic priority that we’ve set for ourselves. So I appreciate the question.

Ken Worthington

Great. And then just one last one. I think this goes to a prior question about sort of reengagement and pent-up demand. But you mentioned that private company valuations are probably 50% below the latest investment rents which makes sense, right? Does this reality change — how has it changed the conversations that you’ve been having with trying to get new unicorns and new private companies to — I’m using bunny ears like list on Ford for the first time?

And to the same extent, is this having an impact on those that are already participating in the Forge platform but this new reality is something that it’s like ostrich and head in the sand. They don’t really want that public mark out there. So they’re really reluctant to participate on the platform. Like is this reality sort of impeding your business as certain or maybe even many of your target audience tried to hide from this reality? And therefore, as they go to their next public rounds and the reality becomes public, they are more willing to return to your platform? Maybe that was what you were trying to say in the first place. But anyway, what is — am I sort of barking up the right tree here or?

Kelly Rodrigues

No, you’re making sense. A couple of months ago, actually in Q1, we started reporting to the press that the emergence of newer unicorns were starting to populate a lot of the activity and mind share of participants that we were seeing. And I think part of the reason for that with a lot of the new emerging unicorns may not have had the baggage of their valuations being highly visible in 2021. And so therefore, it’s almost like the great reset that we’re talking about might not have applied to them because they weren’t around in 2020, at least not as unicorns. So I’d say there’s almost 2 classes of companies that we’re dealing with here with respect to your question, companies that are having to handle and deal with the resetting of a valuation that was incredibly high in ’21. And some of those names you know, because we’ve talked about them previously going out, whether it be Instacart, whether it be Stripe, whether it be Klarna, this are companies have massive numbers in ’21 that they’re having to publicly deal with.

Now there’s a bunch of other names that may have not done a fundraising round. And so yes, in that area, that’s what I would call the sort of category of unicorn that have to face the music at some point. And the question is, what is our performance look now relative to 2 years ago. But the other class of brand-new unicorns aren’t facing that reality at all. There still is valuation pressure. And there is still a question about what should things be priced at but that’s starting to clear itself up. So I’d say as far as Forge is concerned, if a company comes at a conclusion that they want to allow trading or they want to, in fact, manage a program that I’d say in all cases, the reality of the current valuation environment is front and center. We will not be hampered by that or metered by that as long as companies recognize the moment that we’re in. And that’s part of the reason why we’re trying to acknowledge this great reset.

So — but yes, I think a lot of companies still haven’t come to the reality yet, Ken and they’ll get there when they have to raise money for sure.

Dominic Paschel

Awesome. Thank you, Ken, for those questions. And I think we’re going to conclude today’s call. We appreciate you all being here and look forward to seeing you on the road in Q3.

Operator

This concludes today’s conference call. You may now disconnect.