A new startup called eShares was formed to help private companies, as well as investors and employees, move beyond paper records for their shares and options. It does this by transferring their paper stock certificates into electronic shares, which should help all involved keep track of their shares and how much they are worth.
Unlike public markets, where investors and employees have been issued and have traded electronic shares for years, private companies are still stuck in an archaic world of paper stock certificates. For the most part, those certificates are held by a company’s law firm, with records and cap tables recorded in spreadsheets. But it’s not uncommon for records to get mixed up, as keeping track of all stock and options on paper can be a grueling process.
eShares wants to change that by creating a centralized hub where companies keep electronic records of all shares and options for themselves, as well as employees and investors. To sign up, a company would set up an account and designate certain people who can issue and sign certificates, and then eShares manages the workflow of getting existing shares entered into the system. Once that’s done, anyone with shares or options will get a notice saying that their paper certificates have been replaced with electronic shares, which they can see in their eShares portfolio.
Altogether, it’s not all that different from what happens when a company has an IPO — all shareholders receive a blanket notice that their paper certificates have been transferred to electronic shares which can be bought or sold on one of the major public markets. Since it’s an SEC-registered transfer agent, eShares is also able to do this for private companies.
For the companies themselves, eShares will make issuing and managing shares free, but it’s looking at ways to monetize by charging a nominal fee when companies issue options or managing the cap table when options are redeemed by employees. For employees, the dashboard will give them a better view of all their shares and options, and will give them a place where they can exercise options more easily. For investors, eShares can provide a more complete view of their entire portfolio, allowing them to enter the shares that they own and keep track of the most recent price.
For now, the company’s main sales channel is through the law firms of startups, but it’s also going direct to companies, as well. And it’s pitching the service to investors who might be interested in simplifying the management of their portfolios.
The goal is to get as many private companies as possible on the platform, and when that happens there are all sorts of interesting things that the company can do. Doing so would enable easier secondary sales of shares in private companies, for instance, which could lead more companies to hold off on going public, as employees and investors would have a little more liquidity.
eShares has raised $1.8 million from a group of investors that include Draper VC, Expansion VC, k9 Ventures, Elefund, Subtraction Capital, Scott Banister, XG Ventures, Kima Ventures, Andy Palmer and Structure Capital. The company currently has a team of five and is based in Palo Alto.