July 15, 2022

By -

Jamie Green

It’s no secret that in private companies early-stage investors, management, and employees desire liquidity – often for personal reasons like buying a house. Liquidity also helps attract, secure and retain talent. Additionally, it can offer existing investors a way to increase their shareholding and attract new investors onto the share register.

This need for liquidity can drive companies to consider launching an Initial Public Offering (IPO) earlier than they otherwise would, with varying success. An IPO can raise new equity and provide liquidity, but it also exposes companies to far more rigorous reporting and compliance demands – often before they are ready.

Liquidity alternatives to an IPO for private companies

As an alternative, shares in private companies can be traded via informal, off-market arrangements. In this scenario, shareholders generally approach the Board to indicate a desire to sell their shares and unlock liquidity. Under this model there is little transparency around the value of the shares, the depth of demand, or outside knowledge of the company or its prospects due to the informal nature of the process. There is also the potential for conflict of interest between the Board and the shareholder.

This situation is far from ideal. Buyers and sellers are left to negotiate a price themselves, sometimes with little underlying knowledge of the company’s worth and no way to secure information about the business’s history, prospects or fundamentals.

Independent share trading in pre-IPO companies

It was this dilemma and the asymmetry of information that drove PrimaryMarkets to create an alternative option – an independent Trading Platform that unlocks liquidity pre-IPO and relieves company officers of an administrative burden, all while retaining control over the entire process. Companies gain the ability to market liquidity to external investors in a seamless process thereby greatly increasing the attractiveness of the company to potential investors.

The PrimaryMarkets Trading Platform can be coupled with equity raising, accessing its global network of 110,000+ investors.

How pre-IPO trading works

On the PrimaryMarkets Trading Platform, companies write their own trading rules and are set up with a Private Trading Hub. Here, shareholders can list their shares in their company for sale.
The company has complete discretion and control over its trading rules – it can choose who it allows to buy and sell, whether it is only shareholder-to-shareholder, shareholder to approved investors, or unrestricted to the broader market.

For example, there are clients like Spire Group and other Family Offices open up trading windows only at certain intervals throughout the year, allowing only approved persons to sell or buy. By comparison, Animoca Brands (valued at $6B) has thousands of investors and no restrictions on who can buy or sell.

Once a company has established the trading parameters, PrimaryMarkets can actively promote the opportunities to relevant investors. Investors have access on the Platform to all important company information and have price transparency, in addition to seeing all the trades being placed. Meanwhile, from a process perspective transacting is simple. Investors can put their orders on the screen and buy or sell at their complete discretion.

Secure and trusted transactions

When it comes to institutional-grade investments, the stakes are high, which is why PrimaryMarkets, ensures all traders meet all regulatory requirements.

Before a buyer can enter the Trading Platform, they must show proof that they meet the Sophisticated Investor threshold and satisfy all anti-money laundering and know-your-client rules.
Traders’ funds are always secure and completely independent of PrimaryMarkets.All settlements use an independent third party escrow service. Essentially, the money is held in an account they are unable to touch, ensuring a safe, secure transaction for all parties.

While the above process is simple, investor security is paramount.

The Trading Platform facilitates the transactions seamlessly and can operate on a T+0 settlement cycle, meaning a quick transaction for all parties. In less than 24 hours the trade can be matched, the buyer and seller verification completed, transfer of title documentation processed and funds can flow from the escrow account to the seller.

Through the PrimaryMarkets Trading Platform, companies can unlock liquidity quickly and safely, raise new equity and avoid embarking on a IPO prematurely.

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