Equidate, a 4.5-year-old, San Francisco-based marketplace that makes privately held shares available to accredited investors wanting to buy them, is announcing a whopper of a round this morning: $50 million in Series B funding from Financial Technology Partners, Panorama Point Partners and Operative Capital. The company had earlier raised only very small seed and Series A rounds from renowned investors Scott Banister, Tim Draper and Peter Thiel.
The round is entirely unsurprising, given the circle of life for many venture-backed startups, which is to raise capital, raise more capital if your company takes off, then . . . raise even more capital — sometimes a staggering amount — while pushing off an IPO or sale for as long as possible. (At this point, you need to ensure that when you do make a move, your company is valuable enough to return all that money and then some.)
The cycle won’t change any time soon, given the amounts of late-stage capital being raised to support it. Sequoia Capital is well on its way to closing an $8 billion fund. Insight Venture Partners last week closed a $6.3 billion fund. Lightspeed Venture Partners announced $1.8 billion across two new funds earlier this month. Index Ventures closed on two funds totaling $1.65 billion earlier this month. It goes on and on.
While an interesting and complicated and controversial trend for many reasons, including that many more “unicorns” are being minted than will be giant success stories, the shift toward pushing out potential liquidity events has been a very propitious development for secondary players — outfits like Industry Ventures and EquityZen and Saints Capital — that help employees and early investors in privately held companies sell their “pre-IPO” holdings to someone else.
It’s been good news, too, for Equidate, whose profile has been rising behind the scenes, including in part to its role in working with the streaming music service Spotify ahead of its direct public listing in April. According to Equidate co-founder and co-CEO Sohail Prasad, by encouraging an active secondary market ahead of that move, Spotify was able to glean the volume and price discovery information it needed to set a fair price for its public market shares, and Equidate handled 40 percent of those trades.
Equidate, which employs 26 people, typically requires a minimum investment of between $20,000 and $50,000. It serves accredited and institutional investors only. With exceptions, it keeps 5 percent of each transaction as its commission fee, and it says that it’s on track to transact $1 billion worth of shares this year.
Other past companies that Equidate has either worked with directly — or, at least, that haven’t stopped Equidate from selling their privately held shares — include Didi, the major Chinese ridesharing company; Meituan Dianping, the highly valued, China-based group-buying website for locally found consumer products and services (it filed to go public last month); Tencent’s music service, which also plans to list soon; and Xiaomi, the smartphone maker that went public in Hong Kong earlier this month.
Indeed, asked about trends he is seeing in the secondary market, Prasad notes companies are staying private longer, prompting more of them to think about “interval liquidity programs” that let employees and early shareholders sell during pre-set windows.
He also notes that unlike in recent years, where money around the world was looking for opportunities in Silicon Valley, a bit of a sea change is currently afoot. Today, he says, “we’re seeing more VCs and hedge funds looking at these new Asian unicorns and Chinese unicorns in particular. They see them as a great opportunity.”
Pictured above, left to right, Equidate co-founders and co-CEOs Sohail Prasad and Samvit Ramadurgam.