The Semi-Liquid Revolution: Evergreen Funds and the Evolution of Private Company Investing

For decades, the private markets were essentially a "members only" club. If you weren’t a major institutional player or an ultra-high-net-worth individual with the right connections to write a seven-figure check, you were locked out.

The barriers were structural: restrictive SEC "accredited investor" definitions, a lack of transparent data, closed-door deal access and a paper-heavy process made small-scale transactions nearly impossible. While a select universe of late-stage private companies were creating trillions in value, most individual investors were forced to wait for an IPO, by which point much of the hyper-growth phase may have already passed.

Luckily, platforms like EquityZen have changed the game by building a bridge over these walls. By utilizing technology to streamline the transaction process and lowering investment minimums to as little as $5,000, we pioneered the democratization of private company investments.

As companies continue to stay private longer, the pre-IPO investments have gained popularity. This has led to a new trend: the evergreen or interval pre-IPO fund. While these products promise more liquid access, they also introduce a new set of risks. Here we breakdown what every serious investor should understand.

The Price vs. Value Disconnect

Perhaps the most jarring reality for investors in exchange-traded private market funds can be the disconnect between the fund's share price and the actual value of its holdings.

Take the Destiny Tech100 (DXYZ), a closed-end fund that invests in private technology companies, as a case study. Because it trades on a public exchange like a stock, its price is driven by retail supply and demand, not necessarily the underlying valuations of companies like Stripe or OpenAI. In 2024, DXYZ famously traded at a premium of over 2,000% to its Net Asset Value (NAV).

When you buy a fund at such a massive premium, you are essentially paying $20 for every $1 worth of actual assets. Even if the underlying companies perform brilliantly, you’ve already priced in a level of success that may be impossible to realize. In contrast, non-exchange traded structures, like direct secondaries or SPVs should allow you to transact at prices rooted in the actual supply and demand of the private shares themselves, not the whims of public market cycles.

When buying pre-IPO shares in any structure, it is important to understand the price per share you are paying for a given company’s stock and how that translates to the company’s implied valuation. Because this analysis can be difficult to do as an individual investor, EquityZen provides an analysis of the capitalization table¹ for all companies it offers deals via its funds. We also provide reference pricing for hundreds of companies, backed by 13 years of data from 51,000 closed secondary transactions.

The True Cost: Fees That Compound

When evaluating new investment vehicles, it is crucial to understand the fees you are paying. Evergreen and interval funds typically charge ongoing management fees that persist as long as you hold the investment:

• ARK Venture Fund (ARKVX): Carries a total expense ratio that can exceed 2.90% annually.
• Robinhood Ventures Fund: Launched with a 2.0% annual management fee.
• Destiny Tech100 (DXYZ): Management fees are around 2.5% annually.

Over a five-year holding period, a 2.9% annual fee compounds, eating away nearly 15% of your total capital before you even consider investment performance.

At EquityZen, following our acquisition by Morgan Stanley, we’ve reduced fees to a one-time 2.5% transaction fee for all single-company investments. There are no ongoing annual management fees; you pay once to enter, and the rest of the growth belongs to you.

EquityZen’s managed funds, which offer diversified access² to a basket of pre-IPO investments (similar to many of interval funds) charge management fees starting at 1.7% and a 15% performance fee for investments.

Regardless of the structure through which you invest, it is important to understand the full picture of fees you will be paying and how this impacts your investment return potential.

The Trade-offs: What the Brochures Don't Always Highlight

Beyond the pricing and fees, interval funds present structural hurdles that are often overlooked:

• The Liquidity Illusion: While marketed as "semi-liquid," that liquidity is often capped, usually at 5% of the fund’s assets per quarter. If too many investors want out at once, you might find yourself stuck in a "pro-rata" line, unable to exit your full position until there is adequate investor demand.
• The Valuation Gap: Private companies don’t have a daily ticker. Many of these funds rely on NAV calculations that are updated quarterly or semi-annually. In a fast-moving market, you could be buying in at a price that doesn't reflect the current reality of a company’s worth. This is where an active secondary market becomes valuable. Bids, asks, and trade data collected on platforms like EquityZen help inform our investors about the current market value of a given private company’s stock.

These two risks played out publicly for investors in the XOVR ETF, which recently faced a structural crisis. As investors began pulling money out of the fund, the manager was forced to sell off its liquid, public stocks (like Nvidia and Meta) to meet redemptions.

The result? Because the private stake in SpaceX was illiquid and couldn't be sold quickly, it quickly ballooned from a 10% allocation to over 44% of the fund’s total assets. This creates a dangerous liquidity trap:

• Passive Concentration: As the liquid assets are sold off, you are left holding a highly concentrated, illiquid portfolio.
• Valuation Stagnation: XOVR’s private sleeve contributed minimally to performance for long periods because the fund’s valuation methodology didn't reflect real-time secondary market activity.
• Redemption Risk: If the fund faces more exits, it may have no choice but to "fire sale" its remaining assets or restrict redemptions entirely.

Key Tenets: Why Company Approval Matters

Whether you choose to invest via a fund or a direct transaction, two things matter above all else: transparency and approval.

Many of the retail pre-IPO investment vehicles available use forward contracts or derivatives as a means of offering investment access to a given private company. Why? These structures alleviate the hurdle of needing to get approval from the company to buy its stock. This comes with risks. If a transaction isn't company-approved, you run the risk of the issuer refusing to recognize your ownership during an IPO or acquisition because they never approved it in the first place.

At EquityZen, we prioritize company-aligned transactions. We ensure that the companies we work with approve the transfer of shares, placing our investors directly on the cap table or into a company-recognized SPV. We’ve built a strong reputation with companies from acting in this manner for over 13 years. This issuer-aligned approach is vital for ensuring your rights are protected when it matters most, while protecting the interests of private companies themselves.

The Bottom Line

The semi-liquid revolution is expanding the conversation around private markets, which is a win for investor choice and access. However, individual investors should be wary of products that sacrifice transparency and value for the sake of easy access.

As you look to diversify beyond the public markets, ask the hard questions: Am I paying a 2,000% premium for hype? Am I paying high annual fees every year just for access? Does the fund actually own shares of the companies it offers exposure to? How easy is it to sell? Diversification is essential, but it doesn’t need to come at the expense of common-sense economics.

Ready to explore company-approved pre-IPO opportunities? See what’s trading on the EquityZen marketplace today.