2021-The rise of Secondary Trading of Tech Shares
2021 was an unprecedented year for the private tech sector. Investment volumes set new records and during that hype, it was a natural new step that the secondary share transactions market shall gain momentum.
The secondary transactions market for private shares is an important element for the tech sector, who is becoming more and more institutionally dominated, but not necessarily publicly traded.
Below is a short table analyzing the important factors of that market from the standpoint of its 3 major players: the companies, the selling shareholders (including employees) and the buyers):
Companies | Selling Shareholders | Buyers | ||||
---|---|---|---|---|---|---|
Importance Grade | Importance Grade | Importance Grade | ||||
1. Liquidity for Shareholders | B+ | employees and early investors being able to liquidate reduce pressure for an IPO.an other exits | A+ | The most crucial benefit , allowing them to cash out some or all of their holdings before an exit. | B | benefit the buyers through increase of shares availability |
2. Valuation Discovery | A | Accurate valuation is crucial for companies for fundraising and long-term planning. | B | ensures shareholders can sell at a fair market value | A- | ensures they pay a fair price |
3. Increased Investor Access | B- | drives interest and valuations, but may interfere with controlled ownership structure, | B | increase demand and potentially lead to better prices for sellers | A | provides access to high-growth companies that are typically difficult to invest in pre-IPO. |
4. Employee Retention and Motivation | A | offering liquidity options can help retain and motivate key employees, which is critical for growth. | B- | create a favorable environment for future liquidity events. | B | it ensures the company remains stable and able to grow. |
5. Delayed IPOs | B+ | focus on growth without the scrutiny of public markets | B | a mixed benefit. | B+ | expecting price appreciation when the company eventually goes public. |
6. Portfolio Management | C | primarily concerns investors and not the companies | C+ | some shareholders might use secondary sales to rebalance their portfolios | B+ | provide opportunities to diversify and adjust their portfolios |
7. Strategic Investments | B | strategic investors entering through secondary markets can add limited benefits | C | could impact share sale prices positively | A- | Strategic buyers often use secondary markets to gain a foothold in a promising company |
8. Market Sentiment Indicator | B+ | provide valuable insights on how they’re perceived, which can influence strategic decisions. | C+ | Selling shareholders may consider market sentiment as sales timing tool | B | market sentiment helps making informed decisions about when to buy and at what price. |
9. Regulatory Flexibility | B- | indirect benefit about the ease of transaction operation | B- | Easier regulations make selling simpler | B- | Flexible regulations make it easier for buyers to transact |
10. Facilitating Exits for VCs | C+ | indirectly reduce pressure on the company to go public. | B- | potentially creating more opportunities for secondary sales. | C+ | it can create opportunities for buyers to enter the market if VCs are exiting at favorable prices. |
For conclusion:
Companies prioritize valuation discovery and employee retention.
Selling shareholders focus on liquidity and fair valuation.
Buyers value access to investment opportunities and fair pricing.