While still reserved for the caviar crowd — accredited investors that meet a high standard in net worth or income — marketplaces for pre-IPO shares are on fire. And now a major exchange operator is looking to capitalize on the trend.
In a deal announced Tuesday, Nasdaq will collaborate with a group of banks to spin out its trading platform for pre-IPO shares, called Nasdaq Private Market. The move could draw even more transactions to Nasdaq’s marketplace for shares of private firms.
Courting The Pre-IPO Trade
As ample VC funding has helped startups remain patient when it comes to setting a date with public markets, Nasdaq Private Market and similar platforms have stepped in to facilitate markets for buying and selling shares of these firms. These marketplaces help startup employees cash out their shares while allowing investors to get a foot in the door of high-growth firms.
Now, in teaming up with a gang of banking industry heavyweights, Nasdaq is looking to turn its private market into the premier venue for pre-IPO share trading:
- Under the spin-off deal, Nasdaq Private Market will become a stand-alone company that will receive investments from a group of banks including Citigroup, Goldman Sachs, Morgan Stanley, and SVB Financial Group.
- The platform already facilitated a record 57 private-company secondary transactions in the first half of 2021 and handled a three-year high of $4.6 billion in total transaction value in the period, according to Nasdaq. Crypto exchange operator Coinbase and cloud-software provider Asana each had shares exchange hands on the private market ahead of their respective IPOs.
The State of Competition: Rival venues like Carta, ClearList, and EquityZen have sprouted up to manage share transactions for private firms. But many pre-IPO traders endure thin volumes, high fees, and wide buy/sell spreads. And thanks to the stack of paperwork needed to close a private-securities deal, weeks can pass before an agreed-upon trade results in actual share delivery. Nasdaq says its savvy in exchange operations could streamline the pre-IPO trading experience.
Still Waiting: SEC chairman Jay Clayton outlined plans to overhaul regulations and allow more individual investors to participate in pre-IPO trading, saying changes could come “pretty quickly.” That was in 2018. We’re not holding our breath.