The secondary markets — where stakeholders can sell private company shares to investors ahead of an IPO, acquisition or other exit — appear to be rebounding again as valuations drop, a slew of new dedicated secondary funds launch, and the backlog of highly valued unicorn startups swells.
For Augment, a new platform that launched in mid-2023 to connect buyers and sellers of shares in private companies, interest has been particularly hot in highly valued unicorns such as Rubrik, Databricks, SpaceX and Chainalysis.
We recently spoke with Augment co-founder Noel Moldvai. He encountered the secondary markets when he tried to sell his shares in Palo Alto, California-based cybersecurity startup Rubrik in 2020 after leaving the company to pursue other opportunities, and found the process of selling private company shares opaque.
Austin, Texas-based Augment competes with other secondary market trading platforms such as Forge, EquityZen and Hiive.
Moldvai said Augment aims for transparency by making the process of researching prices and buying and selling shares easily accessible in a single view.
“We are transparent and open,” Moldvai said in an email. “Anyone can log in, check out historical pricing based on bids/asks, mutual fund marks, and executed trades, place an order, negotiate directly with a counterparty, and execute a trade, all without actually talking to anyone. That’s the goal. We let the technology do the work.”
Unicorns most actively traded
The market for private shares has become more active again as many venture-backed companies have stayed private longer amid skyrocketing valuations for startups.
The Crunchbase Unicorn Board, a list of private companies ranked by their most recent valuations in a funding deal, now has more than 1,500 companies that are collectively valued at $5 trillion. In decades past, these lavishly funded startups would have gone public years before reaching such lofty valuations, but many of the unicorns on the list have remained private for years or even decades.
With a dearth of IPOs, especially in the past few years, interest in trading shares on the private secondary market has grown.
Moldvai said interest in a particular company on the Augment platform tends to increase ahead of an anticipated IPO, as employees might sell at a discount in order to get some guaranteed liquidity.
“Market dynamics tend to change a bit right before an IPO,” he said via email. “It’s usually employee sellers who need liquidity now to avoid the 6-month post-IPO lockup and investors who want to make a quick gain.”
That interest in pre-IPO companies is reflected in Augment’s list of most actively traded companies by order volume on its platform.
At the top of that list is Rubrik, which filed to go public on April 1. Social news site Reddit, which went public on March 21 at $34 per share, was trading around $30 a share in advance of its IPO, said Moldvai.
Around 80% of the activity on Augment is in just 30 companies, he said.
How it works
Companies are not always keen for employees to sell, Moldvai said, but the reality is there are paper millionaires living in studio apartments in San Francisco who want liquidity.
Secondary market transactions typically need to be approved by the company — which often have first refusal rights to purchase the stock — and can entail transfer fees.
Early-stage investors and solo GPs are also on the Augment platform looking to offload shares in companies, he said.
On the buy side, the Augment platform allows brokers to purchase on behalf of clients, often high-net-worth individuals seeking to own specific high-valued companies. Before the ability to access shares via the secondary markets, these clients could typically access a portfolio of private companies largely by investing in funds.
Augment is licensed as a broker-dealer and alternative trading system with FINRA and the U.S. Securities and Exchange Commission. It shows anonymous buyers and sellers one single view to allow for negotiation to take place. Buyers and sellers are verified on the platform. Once an agreement is made, there is a stock transfer notice sent to the company, which typically has a 30-day first right of refusal.
Trades on the Augment platform typically start at $100,000 for buyers and can be in the millions of dollars. Those minimum transaction values are due to the fees associated with transactions as well as fees to brokers executing trades on behalf of clients.
The platform is working on lowering the cost and minimum transaction size with new products and tech to streamline the process, Moldvai said. Following demand from accredited investors to purchase private company stocks at lower entry points, the company recently launched a new product called Collective that could allow buyers to purchase private company shares for as little as $5,000 by aggregating demand into a special-purpose vehicle for trades.
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Illustration: Dom Guzman
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