Investing in
tomorrow’s IPO’s today

What is the
secondary-market?

The secondary market is one in which original shareholders of private, venture-backed companies (employees, ex-employees & early investors) seek to transfer ownership of their shares to an investor in exchange for liquidity. The proceeds of the sale go to the selling shareholder, not to the company itself. Thus, they are considered “secondary” trades versus a primary issuance of securities. These transactions are also referred to as “pre-IPO” trades, as they are consummated at what, in some cases, coincides with the last private round of financing a company raises before their public offering.

Proliferation of Secondaries
& How You Can Take Advantage:

Given the cost of going public, (which can be substantial in terms of time and resources) and the short-term focus of the public markets (which can cause public companies to focus on quarterly earnings rather than long term growth), technology companies have less incentive to enter the public markets than they did a decade ago. As a result, venture-backed technology companies are increasingly reaching $1B and even $10B valuations before they go public, which leaves less potential upside on the table for public market investors. In 1999, US technology companies typically went public after 4 years; today, the average technology company IPOs after 10+ years.

Because companies are taking longer to go public, their earliest investors and employees must wait much longer for liquidity than they would have in the past.  There are many reasons why these shareholders, of now valuable private companies, might want to tap into a liquidity transaction. An early-stage venture capital investor, for example, might want to return capital to limited partners ahead of the launch of a new fund. An early employee of a now late-stage company might want to sell shares to finance a major life event, like buying a house. These shareholders are “paper-rich”, but “cash-poor”, as the value of their shares continues to increase, but they have no way to monetize this wealth, as there is no public market to sell into.

Acuity Partners acts as an intermediary between the shareholders who desire liquidity, and investors who want investment exposure to successful, late-stage, technology companies before they ultimately go public or get acquired. Investors are interested in gaining access to these fast-growing companies, and they do not have the opportunity to do so through the primary venture funding rounds.

A significant amount of the value creation that used to occur after a company went public, now occurs before the IPO. Thus, leaving the average investor out in the cold. A growing segment of high-net-worth investors, family offices, hedge funds, and sovereign wealth funds, have become aware of this trend and are looking to gain access to shares at reasonable valuations.

Given the fragmented and complex nature of the pre-IPO market, intermediaries, such as Acuity, serve to match buyers and sellers, structure transactions, provide market insights, and assist with the transfer process. We source our own deal flow through a network of VC’s, tech executives, and other top tier pre-IPO firms.

Structure and Pricing:

Investors will become Members of a Series LLC, or Single Purpose Vehicle that purchases a specific company’s shares or the economic interests in those shares. Acuity Partners acts as the manager of the LLC. The Managing Member will establish a Series of Interests for the purpose of making a separate and distinct investment in a specific company identified by the Managing Member, purchasing securities in such company from secondary sources (directly or through forward purchase contracts), or investing in interests of investment funds, special purpose vehicles, and other entities whose investment portfolio owns the shares. Each Series will remain segregated from all other Series.  The minimum and maximum investment amount varies by deal and is at the discretion of the Managing Member.

Primary market pricing is set by the investors who participate in the financing event, while secondary transactions are typically priced relative to the most recent round of funding.

Liquidity Process: 

If a company  in which you have invested goes public, the shares are typically restricted from sale or transfer for 180 days.  Once the lock-up period expires, we will register the shares in your name and transfer them to the brokerage account of your choice.  This process typically takes two to four weeks.

As these are private companies, we  do not have access to the company’s financials, business plan, investor presentation or any other data that would help us to perform extensive due diligence.  Any information that is provided regarding an investment opportunity is derived solely from publicly available information.  We leverage the due diligence performed by the company’s most recent investors and base our offerings on the price those investors paid.

DISCLAIMER: Not all pre-IPO companies will go public or get acquired, and not all IPOs or acquisitions will result in successful investments. There are inherent risks in pre-IPO investments, including the risk of loss of the entire investment, illiquidity, and fluctuations in value and returns. Past performance is not indicative of future returns.