6 ms·

I'm the CEO of Equidate, one of the companies profiled in this article. The article raises excellent points on the pitfalls of trading pre-IPO stock on seconda

I'm the CEO of Equidate, one of the companies profiled in this article. The article raises excellent points on the pitfalls of trading pre-IPO stock on secondary markets. The opportunity is risky to be sure, only for educated investors as ready and able to lose money as to make money. Information is limited and protections are only as good as the integrity of the participants. That puts a premium on honestly, transparency, and strict adherence to securities regulations. The American economy is built on liquidity and rapid turn-around of investments: new company founders, investors, even venture capitalists and private equity fund managers got where they are because an early exit allowed them to cash in early gains in order to re-invest in the market. This used to take a few years, but now, due to market changes, they will no longer see a penny until their company goes public after an average 7.5-year wait. More likely, their company will fail despite years of hard work and success, leaving them nothing. Secondary markets are a relief valve for these founders, early angel investors, and current and former employees. When shares cannot be traded, even the most ambitious and brilliant entrepreneurs are locked in for the better part of a decade, waiting for something to happen. If they have liquidity they can start something new — perhaps a cure to disease, a new media company, or one that launches rocket ships. This liquidity is how many of today’s great companies got their start. Collectively, we owe it to founders and investors, and the economy, to create reliable secondary markets. That’s why Equidate was founded.

themagician 11y ago
"The opportunity is risky to be sure, only for educated investors as ready and able to lose money as to make money." That's bullshit. We let poor people gamble and they aren't "ready and able" to lose anything. The laws around accredited investing are a disgusting example of how the 1% legally entitle themselves to opportunities while excluding the other 99%.
- rday 11y ago
  I don't think the gambling analogy works here. You can't invest 5 dollars in a company 1000 times until you have no money left. Also gambling odds are heavily controlled. Could you imagine a pit boss telling you "Table 5's die have an unfair advantage to land on 7"? Conversely, people raising money tell you exactly why they will succeed and why they are a better choice than some other company. These people can be very convincing as well. When gambling, bets are easy to understand. You make a static bet before the wheel spins. When investing, size of the pot depends on how well the company was valued when you made that bet. The next players may decide that the company was only worth half what you paid. This isn't something uneducated investors expect.
  - themagician 11y ago
    That analogy isn't about odds. It's about the why. The reason we don't let 99% of people buy shares of private companies has NOTHING to do with protecting the wealth of the 99%. Nothing. Zero. And to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting. It has everything to do with creating a private market where the 1% can get in early before the price rises as public money flows in. Wouldn't want too many poor people to get in early. Wouldn't want to have to deal with a bidding war against poor people. Better off to just exclude them from the buying process when the price is low and then sell it to them later when everyone wants it. It's an institutionalized example of a law designed to maintain a plutocracy. It's disgusting. I never really understood just how stacked the cards were until I tried to buy FB shares on the secondary market one day. I wasn't allowed to. What the fuck? Then I got married and I became an accredited investor over night. I'm like, "Wow. Really? REALLY?!?! This is how it works?" Then I lost my status as the result of a divorce. So a few years ago I was smart and experienced enough to take on that risk. Now I'm not.
    - Domenic_S 11y ago
      > to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting. Really? Because a lot of that group said they "didn't know any better" and were "misled" when it came to bad mortgages during the crunch. Whether you believe them or not, that was their argument and it worked. There are entire industries based on exploiting people with bad money management skills (payday lenders, rent-to-own, etc). Clearly the population exists.
      - shanemhansen 11y ago
        But there's only one law "protecting" them from one specific kind of bad money decision. So I guess we're saying payday lenders are ok for poor people, rent-to-own is ok for poor people, but we must protect them from investing in the next amazon or dropbox at all costs. That's much riskier than the lottery.
      - 11y ago
kelukelugames 11y ago
Hi, I know people have sold my company's shares on the secondary market before. Is there a way to find out the selling price?
- ryan-c 11y ago
  The best way is to ask them - my experience has been that people tend to be fairly comfortable discussing per share prices. I used to work at Palantir. If I want to know what my shares are worth, GSV (which is publicly traded) owns Palantir common and preferred shares (as well as shares in several other private companies) and reports a fair market value in their public 10-Q and 10-K filings. This is useful as a baseline sanity check. There are also enough interested buyers that it's feasible to get multiple price quotes.
pthreads 11y ago
"Collectively, we owe it to founders and investors, and the economy, to create reliable secondary markets. That’s why Equidate was founded." No we don't! There are no reliable secondary markets and there is not going to be one simply because they are based on pure speculation. It exists for one reason only - shareholders of pre-IPO companies don't want to wait years and hence are willing to trade their shares for immediate cash. Secondary markets are just another way to create derivates. And we all know how unregulated derivates turned out!
- sohailprasad 11y ago
  "It exists for one reason only - shareholders of pre-IPO companies don't want to wait years and hence are willing to trade their shares for immediate cash." Yes, secondary markets are designed to provide liquidity to shareholders in pre-IPO companies. At the same time, most investors who want access to pre-IPO stocks have no ability to participate. Value creation has increasingly shifted from the public markets toward private markets. Consider eBay, which was valued at $32 million in 1996 and went public with a $1.9 billion valuation in 1998 (a 60x gain), compared to Twitter which went public in 2013 at a $24 billion valuation, a 657x gain from their $35 million valuation in 2007. Why should those who are extremely wealthy and well connected be the only investors with access to such investments?
  - maaku 11y ago
    Because you cherry-picked the examples and chose not to mention the vast majority of companies who's value went to zero?
    - sroussey 11y ago
      Indeed, if one could pick so well, then the public market is a great place and more liquid.
- yellowstuff 11y ago
  Valuing anything illiquid will involve a mix of rational analysis of inherent value and speculation, they can't really be separated. Pre-IPO companies are very illiquid and so could be prone to bubbles, and many knowledgeable people claim they are in a bubble right now. However, claiming that secondary markets are by necessity pure speculation is simply incorrect. Your last paragraph doesn't make any sense to me. Mostly people sell equity shares on secondary markets. Equity shares are not derivatives. They can also sell stock options, which are derivatives, but are not created when they are sold on a secondary market. It sounds to me like all you know is that the word "derivatives" is scary, so things you don't like must be derivatives.
9297230 11y ago
BTW, you have a couple typos in your website copy: "All you have do do is list you shares, prove your ownership"
aluhut 11y ago
"If they have liquidity they can start something new — perhaps a cure to disease, a new media company, or one that launches rocket ships." Just out of interest: do anybody buy this bullshit today? Do you talk like this in public?
- q2 11y ago
  >>> Do you talk like this in public? Honest question: What is wrong with above sentence?
  - aluhut 11y ago
    The examples are so ridiculously overhyped, I just can't believe anybody besides religious leaders would talk like that. Considering the persons position within this topic, makes the whole thing even weirder.

themagician 11y ago

"The opportunity is risky to be sure, only for educated investors as ready and able to lose money as to make money." That's bullshit. We let poor people gamble and they aren't "ready and able" to lose anything. The laws around accredited investing are a disgusting example of how the 1% legally entitle themselves to opportunities while excluding the other 99%.

rday 11y ago
I don't think the gambling analogy works here. You can't invest 5 dollars in a company 1000 times until you have no money left. Also gambling odds are heavily controlled. Could you imagine a pit boss telling you "Table 5's die have an unfair advantage to land on 7"? Conversely, people raising money tell you exactly why they will succeed and why they are a better choice than some other company. These people can be very convincing as well. When gambling, bets are easy to understand. You make a static bet before the wheel spins. When investing, size of the pot depends on how well the company was valued when you made that bet. The next players may decide that the company was only worth half what you paid. This isn't something uneducated investors expect.
- themagician 11y ago
  That analogy isn't about odds. It's about the why. The reason we don't let 99% of people buy shares of private companies has NOTHING to do with protecting the wealth of the 99%. Nothing. Zero. And to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting. It has everything to do with creating a private market where the 1% can get in early before the price rises as public money flows in. Wouldn't want too many poor people to get in early. Wouldn't want to have to deal with a bidding war against poor people. Better off to just exclude them from the buying process when the price is low and then sell it to them later when everyone wants it. It's an institutionalized example of a law designed to maintain a plutocracy. It's disgusting. I never really understood just how stacked the cards were until I tried to buy FB shares on the secondary market one day. I wasn't allowed to. What the fuck? Then I got married and I became an accredited investor over night. I'm like, "Wow. Really? REALLY?!?! This is how it works?" Then I lost my status as the result of a divorce. So a few years ago I was smart and experienced enough to take on that risk. Now I'm not.
  - Domenic_S 11y ago
    > to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting. Really? Because a lot of that group said they "didn't know any better" and were "misled" when it came to bad mortgages during the crunch. Whether you believe them or not, that was their argument and it worked. There are entire industries based on exploiting people with bad money management skills (payday lenders, rent-to-own, etc). Clearly the population exists.
    - shanemhansen 11y ago
      But there's only one law "protecting" them from one specific kind of bad money decision. So I guess we're saying payday lenders are ok for poor people, rent-to-own is ok for poor people, but we must protect them from investing in the next amazon or dropbox at all costs. That's much riskier than the lottery.
    - 11y ago

kelukelugames 11y ago

Hi, I know people have sold my company's shares on the secondary market before. Is there a way to find out the selling price?

ryan-c 11y ago
The best way is to ask them - my experience has been that people tend to be fairly comfortable discussing per share prices. I used to work at Palantir. If I want to know what my shares are worth, GSV (which is publicly traded) owns Palantir common and preferred shares (as well as shares in several other private companies) and reports a fair market value in their public 10-Q and 10-K filings. This is useful as a baseline sanity check. There are also enough interested buyers that it's feasible to get multiple price quotes.

pthreads 11y ago

"Collectively, we owe it to founders and investors, and the economy, to create reliable secondary markets. That’s why Equidate was founded." No we don't! There are no reliable secondary markets and there is not going to be one simply because they are based on pure speculation. It exists for one reason only - shareholders of pre-IPO companies don't want to wait years and hence are willing to trade their shares for immediate cash. Secondary markets are just another way to create derivates. And we all know how unregulated derivates turned out!

sohailprasad 11y ago
"It exists for one reason only - shareholders of pre-IPO companies don't want to wait years and hence are willing to trade their shares for immediate cash." Yes, secondary markets are designed to provide liquidity to shareholders in pre-IPO companies. At the same time, most investors who want access to pre-IPO stocks have no ability to participate. Value creation has increasingly shifted from the public markets toward private markets. Consider eBay, which was valued at $32 million in 1996 and went public with a $1.9 billion valuation in 1998 (a 60x gain), compared to Twitter which went public in 2013 at a $24 billion valuation, a 657x gain from their $35 million valuation in 2007. Why should those who are extremely wealthy and well connected be the only investors with access to such investments?
- maaku 11y ago
  Because you cherry-picked the examples and chose not to mention the vast majority of companies who's value went to zero?
  - sroussey 11y ago
    Indeed, if one could pick so well, then the public market is a great place and more liquid.
yellowstuff 11y ago
Valuing anything illiquid will involve a mix of rational analysis of inherent value and speculation, they can't really be separated. Pre-IPO companies are very illiquid and so could be prone to bubbles, and many knowledgeable people claim they are in a bubble right now. However, claiming that secondary markets are by necessity pure speculation is simply incorrect. Your last paragraph doesn't make any sense to me. Mostly people sell equity shares on secondary markets. Equity shares are not derivatives. They can also sell stock options, which are derivatives, but are not created when they are sold on a secondary market. It sounds to me like all you know is that the word "derivatives" is scary, so things you don't like must be derivatives.

9297230 11y ago

BTW, you have a couple typos in your website copy: "All you have do do is list you shares, prove your ownership"

aluhut 11y ago

"If they have liquidity they can start something new — perhaps a cure to disease, a new media company, or one that launches rocket ships." Just out of interest: do anybody buy this bullshit today? Do you talk like this in public?

q2 11y ago
>>> Do you talk like this in public? Honest question: What is wrong with above sentence?
- aluhut 11y ago
  The examples are so ridiculously overhyped, I just can't believe anybody besides religious leaders would talk like that. Considering the persons position within this topic, makes the whole thing even weirder.