#336
Private Exchange

There are more private technology companies today than ever before – and they are staying private longer. The aggregate value of U.S. “unicorns” is now $715b, up from $53b in 2010, and the number of publicly listed companies is down 50% today from the late 1990s.

Private companies have been forging new ways to access liquidity for their shareholders and employees. In 2019, more private companies considered a direct listing on credible public exchanges (NYSE, Nasdaq) than a traditional IPO. A direct listing allows for a company (Spotify + Slack) to sell secondary shares and achieve price discovery while avoiding the exorbitant banking fees.

The race to build a credible private exchange is heating up with no clear winner(s) yet, as incumbents and new emerging exchanges vie for relevance. Nasdaq strategically entered the market years ago, acquiring Barry Silbert’s original business SecondMarket, which claimed over 50% of all secondaries from venture-backed companies in 2019.

This week, Carta, which provides software for startups to manage their capitalization tables, announced their intentions to launch CartaX after four years of product development. Forge and SharesPost announced a merger, and together facilitated more than $6b in secondary shares of more than 320 private companies. Last year, the SEC approved the “Long-Term Stock Exchange” or the LTSE backed by a handful of venture capital firms.

With these private exchanges racing to come online and capture more than their fair share of the transaction volume, how will private companies react to their shareholders selling stakes and probably having to provide some level of performance data to support the price?