National investment loss lawyers KlaymanToskes reports that the IPO market, once a bustling arena of opportunity, has hit a slump, leaving startup employees and individuals eager to unload their shares searching for alternative avenues. But where there’s a market downturn, there’s often a surge in innovation and adaptation, and the rise of the secondary market is proving to be just that—a beacon of opportunity amidst uncertainty.
At the peak of 2021, companies clamored to list their shares, offering equity holders the chance to cash in on their investments. But as quickly as the market soared, it soured, slamming shut the IPO window. Yet, where one door closes, another opens, and individual shareholders are increasingly turning to the secondary market, a realm where shares in still-private companies can be traded. This burgeoning demand is breathing new life into venture-backed startups that facilitate these transactions.
“People have real liquidity needs,” asserts Akrati Johari, Chief Growth Officer of Zanbato, a private-company-stock trading platform. “They need to fund their lives.” Indeed, Zanbato reports that a significant portion of share sales on its platform last year came from family offices and high-net-worth individuals, underscoring the pivotal role individuals play in driving secondary market activity.
The surge in secondary market activity isn’t solely driven by financial elites; early startup employees are also seizing the opportunity. These individuals, who often accepted lower salaries in exchange for stock options, are now seeking to capitalize on their investments. Vested, a startup providing funding for employees to purchase expiring stock options, saw a sixfold increase in demand in the latter half of last year.
Dave Thornton, Co-founder and CEO of Vested, highlights the emotional and financial stakes at play, noting how many shareholders made significant life decisions based on the anticipation of liquidity events tied to IPOs. However, with the IPO market stagnating, these individuals are turning to the secondary market to unlock value from their investments.
The tech sector’s wave of layoffs further fuels secondary market activity, as laid-off employees face a 90-day window to exercise stock options. Vested specializes in facilitating smaller stock purchases for individuals, catering to those seeking liquidity amidst job transitions.
In the midst of this surge, startups like Caplight are capitalizing on the momentum. With transactions rising 27% in the fourth quarter of 2023, Caplight’s platform offers data and trading services for the secondary market. CEO Javier Avalos notes that common shares, primarily held by employees and founders, dominate these transactions, indicating a trend toward individual liquidity needs.
However, despite the uptick, challenges persist. Bid-ask spreads remain wide, hindering efficient trading. Angel investor Homan Yuen observes the rarity of finding bargain shares amidst inflated spreads. Joe Slevin of Jefferies predicts a market correction as stakeholders adjust asset valuations, potentially narrowing bid-ask spreads and boosting secondary activity.
As we navigate the ever-changing landscape of investment opportunities, the rise of the secondary market stands as a testament to resilience and innovation. While IPOs may stall, the ingenuity of investors and startups alike ensures that avenues for growth and liquidity remain open, unlocking new possibilities for investors worldwide.
About KlaymanToskes
KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm has recovered over $250 million in FINRA arbitrations and over $350 million in other securities litigation matters. KlaymanToskes has office locations in California, Florida, New York, and Puerto Rico.
KlaymanToskes, P.A.
Lawrence L. Klayman, Esq.
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lawrence@klaymantoskes.com
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