The Market Minute: With Crickets From The IPO Market, Employees Still Want Liquidity

Illustration of a board game in the style of Chutes & Ladders named The Market Minute.

The first quarter of the year is just about over, and it’s been a dud for IPOs. But that’s driven a flurry of interest in and lower prices for startup shares on secondary markets including EquityZen.

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The U.S. IPO market had its slowest first quarter in six years, with only 18 IPOs raising around $2.1 billion, according to IPO research firm Renaissance Capital’s latest quarterly review.

But startup employees still want liquidity, especially those who were expecting an IPO or SPAC this year, given how active 2021 was for public-market debuts.

I checked in with Phil Haslett, co-founder of private shares marketplace EquityZen, to learn more about what he’s seeing on the secondary market. 

Turns out, a lot more companies are interested in signing up on the platform for employees to buy and sell shares; and shares of some companies are selling for lower prices compared to the fourth quarter of last year. 

While EquityZen wouldn’t specify which companies were trading lower, Haslett mentioned some shares were going for 10 percent to 30 percent less this quarter than they were in Q4 2021.

EquityZen fields a call almost every day from a unicorn company’s CFO or general counsel asking about providing liquidity to employees, according to the platform.

“To get this sort of unsolicited inbound I think is probably a result of companies deciding to delay IPOs or delay doing a SPAC to address liquidity,” Haslett said in an interview. 

Many companies have put their IPO plans on pause until market conditions improve. Falling returns at the end of 2021 coupled with geopolitical issues in Europe are at least partially at fault for the current conditions, according to Renaissance Capital.

“The near-term outlook for the IPO market is foggy heading into the second quarter, though one thing is clear: recent IPO returns and risk appetite will need to rebound before activity resumes,” Renaissance Capital wrote in its recent report. “Still, many private companies are eyeing 2022 IPOs, and there are plenty of candidates in the pipeline ready to come to market once conditions improve.”

It’s a stark contrast to 2021, which was a record year for IPOs and SPACs, with around 400 IPOs raising more than $142.5 billion. That included high-profile companies such as electric truck maker Rivian and buy now, pay later startup Affirm.

While some startups have filed paperwork to go public this year, none have yet followed through. Justworks, for example, said in January that it would postpone its IPO, citing market conditions. Some companies that come to EquityZen have referenced their IPO or SPAC plans being postponed when inquiring about getting on the platform, while others haven’t, Haslett said.

“Some are saying, ‘Hey we did a round of funding last year, we’re thinking about providing liquidity for folks. … I think for some, it’s kind of explicit, for some it’s more implicit,” Haslett said.

A startup’s management team usually comes to EquityZen when it’s achieved around a $1 billion valuation—those companies are typically at a Series C stage or beyond, and have more than 100 employees. EquityZen serves more than 350 companies, and over 270,000 shareholders and investors use the platform to buy and sell shares, according to the company. Some of the companies on the platform include ByteDance and Tally.

As for how long the IPO slowdown will continue, it’s tough to say. The next round of earnings for tech companies could also affect how tech startup shares trade on private markets.

“Markets are still pretty volatile, there’s still a lot of uncertainty,” Haslett said. “The longer that lasts, the more openness you’ll see of employees or ex-employees selling their shares.”

Illustration: Dom Guzman

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