How New Secondary Markets Are Helping Pre-IPO Shareholders Cash Out

In the financial world today, private equity trading is all the rage. Private equity funds are consistently outperforming the public markets. More often than not, tech startups choose to seek funding through private equity, avoiding the need for a public offering to raise capital.

This hesitation to go public, however, can become a problem for employees who received shares in their startup as compensation. It can also be problematic for former employees who are stuck with blocks of shares they cannot cash out or publicly trade.

Extending shares to employees can be beneficial and attractive initially, but it can become an issue down the line. Shareholders may be left with positions they cannot exit from, waiting impatiently for the company to finally go public.

Solutions to this problem are hard to come by. Sometimes companies will allow these shareholders an opportunity to sell their stock, but they often come with heavy restrictions and is frowned upon by the company. Such is the case with Airbnb, which recently allowed its employees to sell back portions of their shares, but in return agreed to strong stipulations in relation to their remaining shares.

Nevertheless, there are numerous companies entering the space to help solve the dilemma for current and former employees along with major shareholders and interested investors. Companies such as SecondMarket and SharesPost are currently geared towards helping facilitate transactions between willing buyers and sellers, adding liquidity to an otherwise largely illiquid asset class.

PrivatEquity.biz, an emerging online peer-to-peer platform based out of Tel Aviv managed by co-CEOs Sigalit Cohen and Chaim Schiff, goes a step further by hosting a marketplace for current and former employees to expose their shares to private and institutional investors on a secure platform. The service connects shareholders with potential investors, offering guidance and support throughout the whole process of buying, selling, or trading shares.

The inventive platform has already created a lot of buzz, placing them on Red Herring’s list of top 100 innovative companies in Europe. Many employees of large pre-IPO companies such as Gett, DocuSign, Xiaomi, and Palantir have taken note, offering a stake of their shares on PrivatEquity’s diverse marketplace.