Seedrs, a top European securities crowdfunding platform that operates an emerging secondary trading platform for securities issued on the platform, has posted an interesting write-up as to why investors trade on its secondary marketplace (and others).
Recently, CI hosted a webinar on secondary transactions in private securities as this aspect of the crowdfunding industry is a key component in the progress of the online capital formation industry. Providing a path for an exit beyond an IPO or acquisition is beneficial to both issuers and investors. Seedrs is a European leader in this space.
Seedrs shares an interesting perspective driven by empirical experience. We summarize a recent post by Seedrs below.
Employees – frequently early-stage firms pay their employees in cash as well as shares. There may come a time when some of these employees want to turn these shares into cash. This is similar to what you see occur in public companies too.
Angel Investors (and VCs) – many successful early-stage firms experience a rapid rise in value. Angels may want to sell all or part of an investment instead of waiting for an IPO. VC funds may have life cycle requirements and need to pay out their investors.
Founders – yes, the people that have the idea and take the risk may look to take some money off the table before a future M&A or public offering. As Seedrs aptly points out, being a paper millionaire is cool – but it doesn’t pay the bills.
Other early investors – If you have invested in a security in a private company issued via a crowdfunding platform you may not wait for a traditional exit and trade some or all of your shares. Life happens, sometimes you need the cash or perhaps you want to invest the money elsewhere.
And what about the purchasers of these shares? There are always two sides to any trade.
Seedrs points to VC funds that may look to later-stage companies as opposed to startups and early-stage ventures. Other investors may simply see an opportunity in a private security. The goal is to buy what is cheap and sell what is expensive.
The blog post provides more information and is available here to read. Over time, we expect that secondary marketplaces for crowdfunded securities will become the norm and not the exception as demand tends to seek supply and private securities are where much of the growth takes place today.
Seedrs secondary market is available to view and trade issued securities here.