Tertiary Market?

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What happens when primary and secondary buyers of late stage private companies want to start selling out of their positions? Many of them are sitting on huge unrealized gains. Unrealized gains are great, but eventually they need to be realized so that capital can be returned to investors or invested in other things that have prospects for a better IRR.

A lot of money has been invested in late stage private companies in the last 3-5 years by firms who are not traditional private market participants. They made these investments because it is hard to find growth in the public markets. They knew that they wouldn’t get liquidity right away, but hey that seems OK when everything is going up and to the right. When the stock market is going up, people shrug at a lack of liquidity. When the market is going sideways, they get uneasy and think about when they might want to sell. If the market starts going down, a lack of liquidity will cause a race for the door.  If this happens in the private secondary markets, it won’t be pretty.

Let’s say there is a late stage private company that is 10 years old with a valuation of $40bn. The VCs who invested at the beginning are starting to wonder when they will get liquidity to return to their LPs. The early employees are starting to wonder when they can sell so they can incorporate their new wealth into their lifestyles. Even the secondary market buyers who bought the stock 4 years ago at a $1bn, $2bn or $5bn valuation are thinking that the unrealized gains are looking juicy. Add all of these up on the cap table and the company could be sitting on billions of dollars of latent selling interest. And this is just one example company.

It seems like most of the biggest investors on the planet have already been buying private market shares for a while, and most haven’t gotten liquidity yet. Are there any left who have the combined balance sheet to absorb this kind of selling interest? Or to keep investing in new late stage private companies? Won’t the lack of liquidity start to fatigue their balance sheets at some point?

This late stage private market experiment has not been run before – at least not that I’m aware of. I’m not sure how all of this unwinds without companies making their shares available on an exchange of some sort that has the depth to absorb the selling interest and the transparency to ensure that participants are treated fairly. Does anyone think there is a way that this “private trade” unwinds gracefully?


Jason helps companies prepare for, and scale through, hyper-growth periods. He often works closely with CEOs to assist with raising capital, building/managing teams and navigating complex negotiations.


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