Early startup employees now have a way to sell shares of stock or options prior to an IPO. Equidate announced that Entrepreneurs can now get some liquidity, to diversify for example, through their new secondary market. On the other side of the trade of course, investors are able to buy shares in rapidly growing, pre-IPO companies. The price of the stock, regardless of valuation methods used, is a negotiated price.
The investors are buying the right to the upside (or downside) of the shares. Derivatives and collateralized loans are used to facilitate the transaction. After the IPO and the lockup period have pasted, final settlement is made.
It was once a rare practice, but employees are now finding more ways to unload vested shares in their startups along the way.
While employers have typically tried to control these sales, a new marketplace called Equidate is opening up that will let employees sell equity with or without the startup’s consent (although Equidate would prefer to collaborate with employers).
Over the past decade, many companies like Facebook have elected to wait longer before going public. That meant that longtime employees wound up with their wealth mostly tied up in the stock of their companies with few options to diversify their holdings. At the same time, certain investors wanted access to a growing pool of pre-IPO tech companies.
So companies like New York-based SecondMarket cropped up. They have helped facilitate employee share sales for privately-held companies like SurveyMonkey, which raised about $800 million in January of last year.
Equidate’s critique of SecondMarket’s model is that if you are an employee that wants to sell shares, you have to do it through your company.
Get Kim-Mai Cutler’s full story and the details here.