How to Research a Private Company on EquityZen

EquityZen’s tools for investment due diligence

Private company investing allows investors to participate in the growth of innovative businesses before they go public. However, private market investing comes with unique risks and complexities. Conducting thorough due diligence is essential to make informed decisions.

EquityZen wants to make pre-IPO investing easier for individual investors. We provide the key information and research tools needed to help investors make informed choices. This guide outlines key tools and insights for evaluating private companies that are available to investors on EquityZen's platform.

Step 1: Understand the Private Market Landscape

Before diving into specific companies, it’s important to understand how the private market operates. That is where our Private Market Map can help.¹

The Private Market Map provides educational resources and market insights to help investors navigate the market. Investors can delve into specific industries, compare companies, and gain insights such as identifying market leaders and growing industries. 

Key tools include:

• Company Snapshots: Quick overviews of trending private companies, including industry, funding history, and key facts.
• Valuation Trends and Funding Rounds: Interactive visuals allow you to explore details about a private company. Analyze data like estimated market cap and price changes. This will give you a deeper sense of a company's growth and market opportunity.
• Market Score²: This metric combines qualitative and quantitative data about a given private company. Inputs include the company’s transactability, liquidity, popularity and recent activity. 

These tools can help you identify interesting opportunities and assess market trends.

Step 2: Research a Company

Once you understand the market landscape you can begin researching a specific private company investment opportunity. Understanding a company's business model, products, and position in the market is the foundation of due diligence. EquityZen’s Company Pages arm you with the information you need. 

Each company page provides:

• A summary of the company's mission, products or services, and industry focus.
• Company leaders and key institutional investors
• Business model and customer information
• Recent news
• Key milestones, including funding rounds and valuation history
• Additional long-form research through our partnership with Sacra, if available.

You can review this information alongside trends from the Private Market Map. Together, they can help give context to a company's position in its industry and long term potential.

Interested in browsing the private company investment opportunities available on EquityZen's marketplace?

Step 3: Understand the Capitalization Table

A private company’s capitalization table (aka “cap table”) is a key tool investors use to evaluate a private company. In essence, a cap table serves as a snapshot of the company's equity ownership. It provides a breakdown of how capital flows through a company upon a sale or IPO. It also shows how the company’s value has changed over time. 

EquityZen creates cap tables for most deals we offer via our Funds. Cap tables are available through a given Company’s page under the “Cap Table & Funding History” tab. 

Each cap table provides:

• Ownership clarity for key stakeholders
• Valuation estimates based on shares outstanding 
• Liquidity preferences for various shareclasses.
• Dilution details, allowing investors to understand the impact on existing and subsequent investors

For more information on analyzing cap tables, check out this blog post.

Step 4: Analyze Secondary Market Activity

Review unique data from EquityZen’s platform to gauge the market for a company’s shares. This data can help you understand how a company's stock price aligns with market sentiment. 

From the Company Page's “Market Activity” section in the upper righthand corner investors can access a wide range of secondary market data including:

• Bid and ask volume
• Reference prices
• Details on recent transactions, if available
• Market score

These data points come from the activity of more than 700,000 members and 44,000 secondary transactions completed on EquityZen's marketplace.

Step 5: Leverage Educational Tools and News Updates

Stay informed about private market trends and updates on specific companies.

• EquityZen Insights: The EquityZen Insights blog is home to a wide range of content. Find the information you need to understand the private markets - from “Getting Started” guides to educational pieces, IPO analysis and private market trend reports.
  
• EquityZen Help Center: Our Help Center features hundreds of articles that answer frequently asked questions from our clients. You can browse by topic or search for specific articles.

Investing in private company stock requires a thoughtful approach to due diligence. EquityZen provides many resources, from company pages and cap tables to the Private Market Map and Insights blog. Utilizing these tools can help you make informed and confident investment decisions in the private market.

Not all pre-IPO companies will go public or be acquired, and not all IPOs or acquisitions are or will become successful investments. There are inherent risks in pre-IPO investments, including the risk of loss of the entire investment, illiquidity, and fluctuations in value and returns. Investors must be able to afford the loss of their entire investment.

Footnotes 

1. The information in the Private Market Map is intended for reference only and does not constitute a recommendation or personal financial advice. Use of this information is at the user's discretion and risk.
2.  Market Score does not guarantee an investment opportunity.