As the private and public markets continue to be inundated with capital, investors seem to be looking for new ways to invest and platforms offering ways to buy from private companies seem to be having their moment.
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While platforms like New York-based EquityZen and the private Nasdaq marketplace have been in space for years, the past few months have seen a plethora of activity among marketplace builders. While it might seem sudden, it really took years, according to those in the industry. Some of these highlights include:
- San Francisco-based stock management firm Carta raised a $ 500 million Series G run by Silver Lake to a valuation of $ 7.4 billion in August, just six months after unveiling its own exchange private, CartaX;
- San Francisco-based secondary market Forge announced in mid-September its intention to merge with SPAC Motive Capital in a deal valuing the company at $ 2 billion. The merger is expected to be finalized at the end of this year or early 2022 and comes less than a year after Forge’s merger with the private marketplace SharesPost;
- In late September, San Francisco-based Securitize announced its Securitize Markets, which allow trading of a wide range of alternative assets, including shares of private companies, after raising a $ 48 million Series B in June ; and
- The next day, Palo Alto-based EquityBee, which helps employees receive capital to exercise stock options, closed a $ 55 million Series B led by existing investor Group 11, after achieved 500% year-over-year growth. The round came just seven months after his $ 20 million Series A.
Dovi Frances, founding partner of Group 11, said the increased interest in space is not surprising, with more than 12 million tech workers in the United States alone – a growing number – and many with equity holdings which can be difficult to monetize.
“The market is broken and needs to be improved,” Frances said.
Start at the beginning
One problem that the private market has faced is that it still seems opaque to many.
“Most employees don’t understand fairness,” said Oren Barzilai, Founder and CEO of EquityBee. “You can find an engineer who knows all about algorithms, but doesn’t know anything about fairness. “
This is probably partly due to the fact that the market is relatively new and has really been launched in the last half-decade after the employment law allowed private companies with less $ 1 billion in revenue from publicly soliciting investments, said Carlos Domingo, founder and CEO of Securitize.
Since then, demand for the markets has increased as employees are better informed about the stocks they hold and investors see an opportunity to invest even before a traditional IPO exit.
Domingo said this last point is particularly important to remember as times have changed dramatically as a company like Amazon could go public just three years after its inception and create most of its value in public markets.
Amazon had an initial market cap of $ 438 million after it went public. Today, its market capitalization is around $ 1.6 trillion.
“Most companies no longer create most of their value when they are still private,” said Domingo, whose Securitize marketplace focuses primarily on the blockchain and crypto space. “Now, IPOs are mostly a way for founders and early investors to get out. “
This created demand in the market, with private capital markets increasing at more than twice the pace of traditional public markets, according to a review of SEC offers after the employment law came into force, a he declared. However, commercial activity in private markets is only a fraction – 1 / 300th – of traditional public markets.
While many secondary platforms partner with companies to help employees manage their equity, Barzilai’s EquityBee platform caters directly to employees, many of whom are trying to make the difficult – and potentially expensive – decision. – whether or not to exercise their options when they leave a company. .
Barzilai said that as startup employees treat stock options like a lottery ticket, more and more people are starting to understand fairness.
“People see that fairness can be a life-changing event,” Barzilai said, adding that employees are now looking for a seamless solution to access their money as companies stay private longer.
“Companies now take 12 years to go public,” he said. “People change jobs and have to sell, so they need a solution. “
The private markets market
While many private companies that offer secondary markets do not publish financial details, the Nasdaq, as a public company, does publish details on its Nasdaq Private Markets platform. In 2020, the Nasdaq said the market participated in 90 liquidity programs valued at $ 4.5 billion.
Most recently, for the quarter ended June 30, the Nasdaq reported that listing services saw their revenues increase by $ 24 million from a year ago “primarily due to higher listing revenues in the states. – United due to an increase in the total number of listed companies and the increase in revenues of the Nasdaq Private Markets “.
EquityBee’s growth led it to lift a Series B just seven months after its Series A, Barzilai said.
“We have grown faster than expected,” he said. “Series B was due in the fourth quarter of this year… but many VCs approached us. “
Series B has been pre-empted by the company’s current investors, Barzilai said.
Securitize has had a similar experience with investors while increasing its oversubscribed Series B, Domingo said.
“I think a lot of people recognize that this is a huge market,” said Domingo, who believes it could represent a $ 400 billion opportunity.
With such a large market, many in the industry believe there could be multiple winners. However, with such a large market, there will likely also be several large financial players who wish to enter the industry.
Barzilai said he has already seen a lot of interest from “old-school financial institutions” primarily looking to partner up at the moment.
“We expect things to get a lot more interesting,” Barzilai said, adding that he expects these financial companies to primarily partner in the space.
Frances also expressed her skepticism of other established companies looking to enter the space. However, after leading EquityBee’s seed, Series A and Series B, he’s sure of one thing.
“I would be happy to lead the next round as well,” said Frances.
Illustration: Li-Anne Dias.
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