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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 start-ups 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 start-up 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.