The Keys to a Successful Private Market

Insights
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The private market is good for employees, private companies, and shareholders – as long as the market remains transparent and accessible. In my 10+ years running EquityZen, I have come across many good actors who have dedicated themselves to this above-board approach. 

However, as happens every few years, some players are signaling that they are comfortable “moving fast and breaking things”, not just when building technology, but when structuring transactions in a highly regulated and complicated market. When you’re touching people’s nest eggs, asking for forgiveness (not permission) in financial markets is dangerous: full stop. 

Forward contracts are akin to an unofficial sublease of an apartment. Imagine being a landlord that a tenant they never approved is living on their property!

To best serve our customers, and for an efficient and scalable private market, EquityZen always acts with these guiding principles:

  • Transactions must always happen in a fair manner that takes into account all parties – private companies that issue these shares, alongside selling shareholders, and interested investors. 
    • Without trust, transparency, and sound structure, both investors and private companies are hurt. 
    • Investing through risky, convoluted structures (like forward contracts) comes with outsized risk.
    • When “shadow markets” grow, private companies lose control of their ownership at a crucial phase of their growth. 
  • Private companies have every right to know who owns their stock and approve transfers. 
    • EquityZen has completed over 41,000 transactions, across 450+ private issuers1. In each instance, we received company approval: either individually or in bulk. Yes, it takes longer to do it this way, but it is the only way to build an efficient and sustainable market.
  • Treat clients' money like your own. 
    • There is growing demand amongst smaller investors that are eager to get access to late stage private company investments, especially as companies stay private longer. 
    • They deserve to know what they own and also the process related to acquiring, owning, and exiting their investments. 
    • The reason we founded EquityZen was to create tools that support "team little check" as we fondly call them, enabling them to invest in late stage private companies through our funds with as little as $10,000.

We are supportive of innovation and increased access. But it must be done with transparency and within the letter of the law. 

Yes, innovation is possible and necessary to broaden access to an increasingly important market. So, we are called to innovate through technology and process improvements, benefitting all players, including the private company itself. All participants in the private markets should operate above board, not only because we have to (as regulated businesses), but because it’s the key to a transparent and accessible private market.

 

Sources

1. EquityZen data

 

 


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