CircleUp Introduces Secondary Market to Create Liquidity for Private Shares

Liquidity for private company deals is arriving to CircleUp's consumer company focused equity crowdfunding platform.

Back in March, billionaire businessman and investor, Mark Cuban, issued a warning about the current tech bubble in a blog post titled “Why This Tech Bubble is Worse Than the Tech Bubble of 2000”. Unlike other bubbles that were driven by rising stock market valuations, Cuban’s warning was toward private technology deals.

Specifically, Cuban focused on the potential implosion of the US angel investing market, which numbers close to a quarter of a million people, and the emerging equity crowdfunding sector. According to Cuban, the problem is a lack of liquidity, which means that exiting stakes in these private firms is nearly impossible. Cuban concluded that “the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity”.

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Secondary markets as the answer

While the lack of liquidity is an obvious problem, it’s one that many are trying to solve. Among the largest existing solutions are SecondMarket and SharesPost which have created secondary marketplaces for private shares. In addition, within the US, the alternative stock exchange OTC Markets Group has shown interest in potentially setting up listings for shares of private companies that sold equity through crowdfunding platforms.

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While the above initiatives provide solutions, one point of friction is that they are a marketplace of listings of shares that were first sold elsewhere. As such, the underlying shares are often created without secondary markets being involved, a factor which could contain potential stumbling blocks such as rights of first refusal clauses.

CircleUp secondary market

Emerging as a potential answer for both funding deals and follow-on liquidity through a secondary market is a new feature being launched by CircleUp. An equity crowdfunding platform for accredited investors and focused exclusively on consumer companies, CircleUp is introducing a secondary market as part of their platform.

Aiming to provide liquidity, as well as to provide investors with the ability to acquire stakes in companies that they were unable to be a part of during their initial crowdfunding campaign, the new secondary marketplace opens up stock sales twice a year. With fewer participants than stock exchanges, the half yearly secondary market provides time for price discovery and analysis of valuations for any equity sales.

Speaking to CNBC, CircleUp CEO and Co-Founder, Ryan Caldbeck, stated that the secondary market was driven by demand from companies that raised money on the platform. He added that “Helping to shorten the liquidity period or giving certainty over the exits is something that both sides are particularly excited about”. According to Caldbeck, 15 to 20 companies will be participating in the initial launch of the secondary market.

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