Equidate's new stock market for private tech offers in-depth data on startups
nytimes.comAnyone remember Sandhill Exchange, and how badly they got slapped around by the SEC? I'd steer clear of this sort of thing until further notice.
Hi there, co-founder of Equidate here, happy to answer any questions you have.
We're well aware of Sandhill Exchange — they were akin to a prediction market — we're a market where employees and investors who own shares are able to get liquidity, and accredited investors are able to invest.
We've worked with our primary outside counsel, Lowenstein Sandler (an internationally-prominent securities law firm), to ensure our compliance with all regulation. As the article mentions, we've discussed Equidate with regulators since 2014, and this past January FINRA approved our purchase of a broker-dealer.
Finally, we've gone above and beyond to make sure our customers are protected. We have an exclusive underwriting agreement and insurance policy with Munich Re, the world's largest reinsurance company, to protect our investors from fraud.
It's very rare for a startup our size to have a full-time Chief Legal Officer & Chief Compliance Officer, and it's a testament to our efforts to get this right.
Hey, I have some questions as a potential seller. I signed up and added some details about the options I have from my employer. There is a general lack of info about what I can do on the site. The "sell" action has some scary language that makes it sound like I need to immediately commit to selling a specific number of shares at a specific price before getting any more information. Would I need to pay any fees? Does demand exist for my shares, and at what price? Do I need to exercise my options before listing my shares? Is there any way I can find this information out before my shares vest? Do I need to actually sell my shares, which might alert my employer, or is it some kind of arrangement that gets around that? This might affect my decision for how long to stay with my employer.
I don't mean these questions to be critical, if this service works it could turn a source of frustrating uncertainty into cash.
Hey! All very fair questions, thanks for pointing them out. We've tried to make our FAQ as comprehensive as possible, and it has answers for all of your questions: https://faq.equidateinc.com/
Feel free to reach out to info@equidateinc.com if you have questions that are specific to you and we'd be happy to help!
I think my mistake was making an account without looking at the FAQ first. I don't see any way to get to it from the logged-in UI.
Can you explain in plain English what 'insider' information you publish and how you allow trading in private companies when this clearly is not possible elsewhere. And if it is possible why don't these companies just IPO.
Sure thing. We share information about companies' stock prices, share counts, and valuations — data that has historically unavailable, inaccurate, and/or very expensive (tens to hundreds of thousands of dollars per year). We show you real-time news about these companies, and let you track the value of your portfolio if you're an investor or employee.
We've built tools to use this data: https://equidateinc.com/browse Without even signing up, you can answer questions like: "Show me Series B/C companies that have raised $10-100M, have a valuation of $100M-$1B, have less than 200 employees, with a B2B business model in the Transportation industry." We think that's awesome — whether you're an investor looking for investment opportunities, an employee looking for a new job, or a just doing research on companies, it can be incredibly powerful for the entire ecosystem to have access to this data and the tools to use it.
Companies don't IPO for a variety of reasons. Going public is a source of financing for companies — in recent years, with hedge funds and private equity firms participating in Series B/C/Ds++, there is a lot more capital available in the private market. New regulation has made it far more expensive to go public and to stay public. Going public is arduous on the company from the perspective of the time and attention it takes from management. And finally, once a company is public, they are subject to the whims of the market and have to answer to new investors who have a short-term focus on quarter-to-quarter earnings, often at the cost of not being able to have full autonomy to execute on their long-term vision.
It's possible to trade in private companies. I've done it. What you need is a willing seller and a willing buyer.
Finding a willing other party is the trick, in part because a lack of information makes people wary of trading. So this company provides a little more information and a matchmaking registry.
My feeling is that you'd do extremely well if you focus on employee liquidity. I don't think that's your focus or overall vision but a well working and trustworthy place were employees can sell their options hassle free and not get slapped around with all sorts of taxes and fees seems to be missing. That market might get invalidated eventually if startups change their option strategies (YC provides good advice) but it seems like a great initial launching spot to grab some early adopters.
>"Sand Hill began as two Silicon Valley entrepreneurs creating an online business involving the valuation of private startup companies in the region along the lines of a fantasy sports league. But Gerrit Hall and Elaine Ou changed their business model multiple times, and earlier this year Sand Hill evolved to invite web users to use real money to buy and sell contracts referencing pre-IPO companies and their value.
Sand Hill sought people to fund accounts using dollars or bitcoins. Hall and Ou did not ask users about their financial holdings or limit the offering to users with any specific amount of assets. In fact, they wrote on the Sand Hill website: “We accept everybody regardless of accreditation status.” Hall and Ou intended to pay users who profited from their contracts. "
Interesting. Hadn't heard of this. Here's the SEC link: https://www.sec.gov/news/pressrelease/2015-123.html
went to site and got an im like this.. soahil prasad see you here so hopefully you can explain. Feels extremely shady. Obviously you are not letting me insantly make a 2500% return, but your instant help message says this... what kind of gimic? (or was system hacked... trying to give you benefit of the doubt!)
Equidate's Pre-IPO Promotion: Get access to FB at $4.54!
Hi there, thanks for checking out Equidate!
We're incredibly excited about giving the world early access to high growth private tech companies. To show you what we mean, we're giving you a second chance to get in early on two of the world's most successful companies — Facebook and Tesla — at their pre-IPO prices!
Sign up here to get in on Facebook at $4.54 (the price at its Series E in May 2009 where DST Global invested $200M) instead of its recent price of over $115.
You can share the following link with your friends! https://early.equidateinc.com/
We're running a promotional event called the Early Is Everything Pre-IPO Pricing Event this Thursday (7/28) and next (8/4) to celebrate the launch of our new trading platform.
We'll be giving over 100 people the opportunity to get in early on Facebook ($4.54) and Tesla ($2.97).
As per the Event FAQ on the linked site, we're taking a loss on every certificate to prove a point — that when it comes to investing in the most successful companies in the world, early is everything.
The "Early is Everything" promotion offers eligible participants the opportunity to purchase a certificate at the pre-IPO price of either Facebook or Tesla Motors, redeemable for securities through a registered broker-dealer, or for merchandise, at the current price of these companies as of July 13, 2016. Offer good while supplies last. Other terms and restrictions apply, please see event page for full details. See: https://early.equidateinc.com/
to make explict, does each person get 1 share? so about 110 profit facebook and then 225 profit for tesla. As you can see from my profile i don't comment a lot here, but felt compelled as i personally was put off by the spammy nature.
YMMV.
Just friendly advice and also caution to others I guess. For a site that talks about having institutional investors and having one of the top legal firms in the world this mlm and internet riches type vibe is what I got. Again, you guys may be great, but this is very unprofessional / gimmicky in my opinion
The goal of the campaign is to drive awareness among individual investors and employees, and we're doing so by contrasting the opportunities of today with opportunities in successful companies of the past. We've gotten a great response so far, but thanks for your candid feedback.
Each person is limited to one certificate. The certificate is redeemable either for securities (i.e. a share of Facebook at its closing price as of July 13, 2016) through a broker-dealer for those who setup an account, or else for merchandise. It's structured like this specifically to ensure that we're compliant with relevant regulation.
It appears to be email grab... but this is straight gimicry and is it even legal????
Yes, it is legal. As per the event page: The promotion is not an offer to buy or sell securities, nor are the certificates sold in the promotion securities.
Once your purchase is confirmed, we'll send you information via email on how to fulfill your purchase and your certificate. The certificate is redeemable either for securities through a broker-dealer for those who setup an account, or else for merchandise.
All of the proceeds from our Early Is Everything Pre-IPO Pricing Event are being donated to MissionBit, a Bay Area nonprofit that sponsors underprivileged high school students in the San Francisco Bay Area to learn computer development skills.
Would you consider adding some of the startup valuations from different mutual funds to add context to the valuations? Your latest valuation for DropBox is $19.10 but various mutual funds have valued them between $9.75 and $12.30 in Q2 2016 [0]. I think it would add context and be useful for buyers and sellers - I'm not sure anyone would buy DropBox for $19.10 today, and it's giving employees with options false hope that they would get that amount. [0] http://graphics.wsj.com/tech-startup-stocks-to-watch/
So this is either a glorified bucket shop or yet another company with the brilliant idea of setting up an unregulated secondary market selling an incredibly wide variety of different ownership instruments that were never intended to be sold.
IANAL, but if I was their counsel, I would definitely advise them to keep paying me a lot of money for a 10% chance it somehow works out with the regulators.
How is this possible if most employee stock has right of first refusal built-in?
Would the employee care? The right of first refusal means your employer has to match the $.
Buyers may be scarce if too many employees are so encumbered though. Is that your concern?
That's for transferring, the sale only. And the lack of transparency means we also don't know if "most" is really like that, no matter how standard your CEO said it was.
The three startups you worked for probably share some venture capital firm or related board member that copy and pasted the equity contract
But it didn't mean, necessarily, that condition is so prevalent or that much of a roadblock
Dude. Bro. I advise other people on their stock grants, and see this all the time. Thanks for assuming I'm just a schlob.
Hi, company lawyer here. Sorry if that sounded dismissive. You're completely right that there's a right of first refusal built somewhere into most stock issuances to team members. They vary in who holds the right, the range of transactions that trigger the right, exceptions to the right, and how it operates. Accordingly, we look at the paperwork for each company and each shareholder in order to structure a transaction that works, if possible.
"just a schlob". on my next business card.
ESO Fund?
How does a market that lets people buy and sell shares without the company going public not get immediately slapped around by the SEC?
This all just feels wrong to me. As an employee selling shares how can I be sure I'm not getting screwed over by anyone? The entire thing just seems shady.
As the company's in-house lawyer, I see that people who have a lot of stock have generally hired a wealth manager, financial advisor, or personal lawyer who advises them on transactions, or learn through colleagues who have done so. Some lawyers specialize in employee equity, or private transactions more generally. Shares of stock can be bought and sold like other financial assets, subject to any regulations and contract obligations that apply. That's a definitional attribute of stock and other securities. Public markets are a layer on top of that, not something fundamentally different. Employee shareholders who are not directors, officers, or 10% owners generally fall under a 4(a)(1) exemption from registration. There are a bunch of online resources on the topic, for example http://securities-law-blog.com/2015/06/23/section-4a1-4a1%C2... (no connection and not an endorsement, the site just looks helpful).
A mentor of mine told me this is a legal nightmare. I imagine if there is enough demand the state will be forced to adapt to the market. But this kind of probably will go through some growing pains
"a market for trading shares of private companies"
So... the stock market? How can this possibly be legal?
So what happens if the company goes public?
Could I sell Equidate options on Equidate?
CLO-dude here. Hmm. We are still fine-tuning the option plan so for now as a technical matter, no.
When we do flip that switch, I expect that we will offer our optionees, like other team members, early investors, advisors, and other shareholders at least as much liquidity as we expect out of the rest of the industry. All of our stock agreements to date contemplate secondary liquidity. We might have to do that via third parties — I haven't thought through the implications of trading Equidate shares on Equidate. It sounds like a Malkovich moment.