How to Revolutionize the Private Capital Markets

In 2010, venture capital investors poured $21.8 billion into startups. Fast forward a decade to 2020 when well over 500 “supergiant” funding rounds of $100 million+ were raised, totaling $142 billion.

In early 2021, even as global economies fought to shake off the effects of the pandemic, global venture investments were up a whopping 94% year-over-year.  There’s no doubt that the investment community is increasingly buying what the private markets are selling. Yet there remains an undeniable barrier to growth we have yet to overcome—transparency in the private markets remains elusive.

Despite the explosive growth in private market investment, only a small fraction of the burgeoning primary capital that’s being deployed finds a level of transactional freedom that resembles public market trading. Currently, the only established paths to liquidity for private investors are major corporate events such as IPOs or mergers and acquisitions. One of the more novel strategies is the active and ever-evolving secondary market—the single legitimate escape hatch that offers relief from an otherwise extensive holding period.

While secondary transaction volume is growing, secondary markets remain highly decentralized, inefficient, and inaccessible for most. As a result, transaction volume remains minimal compared to public stock market activity. Each year, the public market raises $1.4 trillion and trades at an astounding rate of 33x annually. Meanwhile, $2.9 trillion of capital is invested into the private capital market, nearly double the public markets, but a mere $100 billion of that capital is being traded annually in secondary markets.

Closing the Delta

So, what’s behind this large delta?

Private markets remain illiquid and opaque with a lack of data transparency. Improved access will manifest itself in efficient trading platforms that streamline the transaction process. Unlike the highly transparent public markets, private markets operate under a much different policy. So while information about the company is shared by the issuer in the primary fundraising context, non-issuer-sponsored secondaries often involve significant information asymmetry, not necessarily by design, but by lack of structure and integration.

Today sophisticated secondary trading strategies rely heavily on trusted networks that serve to bridge the information gap. Without the advent of new infrastructure that makes reliable and trustworthy data readily available and integrates various systems of record, investors cannot evaluate risk or properly understand the value of the securities they are acquiring. Until secondary market participants can better understand private securities, expanding access to them will remain a distant prospect.

Liquidity For All

In sum, facilitating transparency and a scalable supply of private securities requires trust. With double- and triple-digit year-over-year growth in private market deal flow, the need for accurate, structured data has never been greater. Moreover, the evolution of private markets has shown signs of potential, widespread liquidity options for founders, high net worth individuals, limited partners, and fund managers who historically have held private securities until a major company liquidity event such as an IPO or acquisition. However, market participants must demand an integrated and structured data network that forms a bedrock of confidence to create, understand and participate in a more liquid private capital ecosystem.

Kelsey Chase is the President and co-founder of Aumni, the data infrastructure analytics platform for private capital markets. Prior to co-founding Aumni, Kelsey was a corporate attorney with DLA Piper and Wilson Sonsini, where he represented emerging growth companies and private capital investors. Kelsey has lectured on the subjects of venture capital and entrepreneurship at UC Hastings College of the Law, the University of San Diego School of Business and School of Law, and is a frequent guest on podcasts, webinars, and panels.

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