Though the COVID-19 crisis continues to rattle financial markets, I’m seeing some encouraging signs of life in the private market from my view as President of SharesPost Financial Corp (“SharesPost”). Although the downturn in the public markets has been severe, the private market is more active than one might think. We are pleased to say that secondary transactions are slowly starting to increase in volume as employees look to generate needed cash and institutional investors seek to secure stakes in the most promising private growth companies.
SharesPost is helping private companies weather this storm by enabling controlled liquidity for their employees. This is especially urgent for the many companies that have had to lay off staff. Companies supporting liquidity for terminated employees are providing an enormous benefit. The financial peace of mind that comes from these sales makes a huge difference to these employees during these difficult times. We also believe that the increasing amounts of liquidity in the private market we are seeing now will be a positive factor in hastening the market’s recovery.
While even the savviest of financial forecasters had difficulty predicting the impact of the global pandemic, SharesPost has significant experience in coping with volatile markets, as we successfully guided buyers and issuers through the stock market contraction of 2016. In addition to deepening our relationships with investors on both sides of the deal since then, we’ve also formed powerful alliances with institutional clients. Now, these institutional investors are supporting private companies experiencing turbulence, and in need of liquidity, by stepping in with an initial investment or increasing an existing position.
One encouraging observation during this crisis is that private companies are expediting secondary transfers of their shares for their employees to help them cope with the myriad effects of COVID-19. Additionally, some firms are in the process of extending stock option expiration dates, so that employees have more flexibility to exercise options and thereby obtain the liquidity they deserve as part of their compensation. This is becoming an increasingly important strategy for companies looking to support employees who have been laid off while at the same time bolstering cash reserves needed to weather the pandemic.
It’s been extremely encouraging to watch participants across the investment ecosystem — from companies organizing secondary purchases for their staff, to the more active role of venture funds and institutional investors participating in a range of secondary structures— pull together and do their part to support private companies in their efforts to persevere through this upheaval.
SharesPost is doing its part, too; we’re helping companies increase their flow of secondary transactions by locating interested buyers. This kind of coordinated effort is what will enable our investment community to continue to prosper.
The present dilemma has also brought new private companies to SharesPost’s SEC-registered alternative trading system where we’re doing everything we can to structure secondary transactions according to each company’s preferred process. SharesPost can prioritize time-sensitive situations for companies facing option deadlines, administer purchase agreements and contracts, or find institutional buyers that can meet sellers’ expectations for liquidity. Our goal is to make it as simple as possible for sellers to obtain liquidity.
We also recognize that companies may not currently have the bandwidth to research secondary transactions themselves, especially at a time when they might be getting leaner. SharesPost is here and ‘at-the-ready’ to guide firms through this critical time.
Since the pandemic began, we’ve seen some individual buyers show less appetite for alternative investments. Alternatively, institutions now appear to be less apprehensive about taking on secondary trades. Moreover, institutions are demonstrating greater flexibility in making sure sellers are getting the liquidity they now need.
After transacting with more than 300 different private companies on the secondary market, SharesPost is well positioned to facilitate transactions, and we recognize one size doesn’t fit all. We have the experience and knowledge to aid both secondary buyers and sellers in facilitating transactions during uncertain times.
While it’s uncertain how long the pandemic will persist, we are focused on doing whatever we can to help our clients and private companies through this difficult time.
Jennifer Phillips is President & Head of Private Securities for SharesPost Financial Corp.
This article does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.
Securities referenced in this article may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.
Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.
Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.
SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.
Copyright SharesPost, Inc. 2020. All rights reserved.