There has been significant growth in platforms that offer shares in promising private firms before they go public. Recently, SpaceX (NASDAQ:SPCX) went public at a price per share of $135 or a valuation of around $1.78 trillion. After just a few days of trading on Nasdaq, shares are trading above $200, with a market cap well over $2 trillion. If you had purchased shares in the secondary marketplace on platforms like Nasdaq Private, you could have earned a solid capital gain windfall.
To participate in private marketplaces for securities issued under the Reg D securities exemption, investors must be deemed as Accredited. As it stands today, to be deemed an Accredited Investor, you must earn over $200,000 a year ($300,000 if married) or have a net worth of over $1 million, not counting a primary residence. While there are a few caveats to this definition, in which an investor may not need to meet these wealth hurdles, in general, you must meet these metrics to invest in Reg D offerings.
Private securities marketplaces can either purchase shares directly and resell them or enable a current shareholder to sell to a willing buyer. There are times when early investors in a company or employees need liquidity before a public offering, so these platforms provide a valuable service in capital markets. Platforms may enable direct share purchase via a special purpose vehicle (SPV), which may include additional stipulations.
For investors interested in jumping ahead of the queue, you should shop around, as popular companies frequently trade on different platforms like Nasdaq Private, Forge, or EquityZen, as well as on brokers that create opportunities for users to participate in private offerings. The price offered to investors can vary dramatically, as some platforms apply a premium to shares, and other fees may also be added, such as VC carry (which can be up to 20% of any profits).
At times, the price differential can be around 40%. This is a big deal. While minimum investments can vary, which may influence your decision whether to invest in a private security, it makes sense for you to quickly compare prices if you believe a private company has a promising future. A few minutes can save you money or, from a different perspective, yield a superior return on your investment.