The secondary market, where stakeholders can sell shares in private companies to investors in advance of IPOs, acquisitions, and other exits, has seen declining valuations, the launch of numerous new dedicated secondary funds, and the emergence of highly valued unicorn startups. As the backlog of orders continues to swell, the market appears to be recovering again. .
Augment, a new platform launched in mid-2023 to connect buyers and sellers of equity in private companies, has seen particular interest from well-regarded unicorns such as Rubrik, Databricks, SpaceX, and Chaineries. There is.
We recently spoke with Noel Moldvai, co-founder of Augment. In 2020, after leaving the company to pursue other opportunities, he encountered the secondary market while trying to sell his stake in Rubrik, a cybersecurity startup based in Palo Alto, Calif., and became a privately held company. found that the stock sale process was not transparent.
Based in Austin, Texas, Augment competes with other secondary market trading platforms such as Forge, EquityZen, and Hiive.
Moldvai said Augment aims for transparency by making the price research and stock buying and selling process easily accessible in a single view.
“We are transparent and open,” Moldvai said in an email. “Anyone can log in and view bids/asks, mutual fund markings, historical prices based on executed trades, place orders, negotiate directly with counterparties, and trade without actually speaking to anyone. That’s the goal. We’re letting technology do the job.”
Most actively traded unicorns
The private equity market is becoming active again, with many venture-backed companies remaining private for the long term as startup valuations soar.
The Crunchbase Unicorn Board is a list of privately held companies ranked by most recent valuation in a funding transaction, and currently includes over 1,500 companies with a total valuation of $5 trillion. Reaching a dollar. In previous decades, these well-funded startups would have gone public years before reaching such lofty valuations, but the unicorns on the list Many remain private for years or even decades.
There has been a growing interest in trading stocks in the private secondary market, especially due to the lack of IPOs in recent years.
Moldvai said interest in certain companies on Augment platforms tends to increase ahead of expected IPOs, as employees may sell at discounted prices to secure liquidity. Ta.
“Market dynamics tend to change a little right before an IPO,” he said in an email. “Typically, it’s the employee sellers who need liquidity now to avoid a six-month post-IPO lockup, and investors looking for a quick profit. ”
This interest in pre-IPO companies is reflected in the list of most actively traded companies by order volume on Augment’s platform.
At the top of that list is Rubrik, which filed to go public on April 1st. Social news site Reddit, which went public on March 21 at $34 a share, was trading around $30 a share before its IPO, Moldubai said.
About 80% of the augmentation activity is being done by just 30 companies, he said.
How to use
Companies aren’t necessarily keen on selling employees, Moldubai said, but the reality is paper billionaires looking for liquidity are living in studio apartments in San Francisco.
Secondary market transactions typically require the approval of the company with priority rights to purchase shares and may be subject to transfer fees.
He said early-stage investors and solo practitioners are also using the Augment platform, looking to offload stakes in companies.
On the buy side, the Augment platform allows brokers to buy on behalf of their clients, often high-net-worth individuals seeking ownership of specific high-value companies. Before gaining access to stocks through the secondary market, these customers typically gained access to portfolios of private companies by investing primarily in funds.
Augment is licensed by FINRA and the U.S. Securities and Exchange Commission as a broker-dealer and alternative trading system. Anonymous buyers and sellers have a single view and can negotiate. Buyers and sellers are authenticated on the platform. Once an agreement is reached, a stock transfer notice is sent to the company, which typically has a first right of refusal of 30 days.
Transactions on the Augment platform typically start at $100,000 for buyers and can reach millions of dollars in some cases. These minimum trade amounts are due to fees associated with the trade and fees to the broker who executes the trade on behalf of the customer.
Moldubai said the platform is working to reduce costs and minimum transaction sizes by leveraging new products and technologies to streamline processes. In response to demand from accredited investors who want to purchase private company stock at lower entry points, the firm recently aggregated demand into trading special purpose vehicles, making it easier for buyers to purchase private company stock. It has launched a new product called Collective that can be purchased for as little as $5,000.
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Illustration: Dom Guzman
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