EquityZen's Blog On Startups and Their Economics

What did the Redfin IPO Mean for EquityZen Clients?

Chuk Okpalugo | August 10, 2017

Redfin (NASDAQ: RDFN), the Seattle-based tech-enabled residential real estate brokerage, completed its Initial Public Offering (IPO) on July 28, 2017. By providing investment access in the company pre-IPO in 2016, EquityZen’s platform allowed several qualified investors to achieve average returns over 3x in excess of those of public market investors who continue to hold their shares.

EquityZen’s platform makes investment available in established, growth-stage private companies 2 – 4 years before the IPO . With private companies today taking, on average, over 10 years to go public compared to four years in 1999 , much more of a company’s growth occurs in the private markets. EquityZen’s platform can provide a massive advantage to private investors over those who wait until the company’s shares are available for investment in the public market. For a more detailed analysis, read the Redfin Case Study .

Note: returns from investments in Redfin are not necessarily indicative of returns achieved on all investments on the EquityZen platform.

EquityZen Investors Mark Superior Returns

Redfin has had a strong public markets debut. As of last Friday (Aug 4th), RDFN closed at $25.84 per share after pricing the IPO at $15.00 per share. However, the earliest price available to the typical public investor was the opening price on the first day of trading, $19.56 per share (the IPO Open price). Returns on an investment at the IPO Open price would be marked at 32% at recent prices but even investing at that price is theoretical, as it requires quick execution and some luck to invest right at the open. Such is the constraint of investing solely in the public market.

EquityZen breaks this constraint by allowing investors to access opportunities in growth-stage companies backed by premier VCs before they start trading on the NYSE or NASDAQ. In Redfin’s case, EquityZen’s platform enabled several investors to invest in Redfin in late 2016 at what amounted to a dollar-weighted average price of $12.00 per share. As a result, EquityZen clients are able to mark a 115% return at recent prices of $25.84, over 3x in excess of public market investors who continue to hold their shares.

Performance of Redfin Investments Facilitated via EquityZen Platform
Source: EquityZen, Yahoo Finance

Company Buy-In is Vital

As with all deals on EquityZen, the Redfin transactions were conducted with approval from the company – this means actual shares were transferred. Since shares are transferred, rather than synthetic contracts such as derivatives, EquityZen investors can rest assured that the transactions are above-board and without counter-party risk.

EquityZen Leading Secondaries 2.0 Movement

On the principles of building a trusted, secure, and transparent solution, EquityZen has led the wave of Secondaries 2.0 . Building on top of these principles, EquityZen is proud to have conducted 2,000+ private placement transactions in 70+ pre-IPO tech companies, which are among the largest and most reputable private firms. In fact, one in three of the largest 50 unicorns (private tech companies worth over $1B) consider EquityZen a liquidity provider. EquityZen’s platform allows accredited investors unique investment access with a minimum investment of $20,000. If you are an accredited investor, you too can research investment opportunities. Get started here.

(You can determine whether you are an accredited investor by going here . If you qualify, you can join 10,000+ accredited investors from 30+ countries who can access , research , and invest in private companies on EquityZen’s investment platform.)

Related Links
Redfin Case Study
Redfin Path to IPO


Streaming: The Savior of the Music Industry?

Chuk Okpalugo | August 03, 2017

The last two years have proven to be a huge turning point for the music industry as internet streaming has meaningfully reversed the 15-year decline in industry revenues brought about by the internet piracy age at the turn of the century. In this post, an excerpt of our industry overview report, we’ll briefly discuss the industry growth trends. For a detailed analysis of the industry’s history and the business performance of the key players, please download the report here: EquityZen Industry Overview: Music Streaming .

Source: Global Music Report 2017, IFPI

The Music Streaming Wave

Since the early 2000’s digital music has been a growing category of music consumption. The high levels of piracy and rapidly declining physical CD purchases resulted in billions of lost industry revenues. As broadband speeds increased and huge music libraries became easily accessible internet streaming became the dominant way to listen to, and a pay for, digital music. There are many platforms in the market today, forming three broad categories:
  • On-Demand, e.g. Spotify, Rdio, Deezer, and Rhapsody
  • Internet Radio, e.g. Pandora, Slacker, and 8Tracks
  • User uploaded content, e.g. Youtube, Soundcloud, and Grooveshark

The effect of the internet streaming wave has been dramatic. After almost two decades of decline, digital music sales (driven by streaming) has reversed the decline of global music industry revenues and led to two years of positive growth. Total industry revenues grew 5.9% to USD 15.7 Bn in 2016 of which digital revenues accounted for more than half. Streaming was responsible for 60% of this growth, offsetting declines of digital downloads and physical purchases and now accounting for 60% of global digital revenues.

Key Players

Spotify (on-demand) and Pandora (internet) are the leading internet streaming companies today in terms of users. Apple Music, although a newcomer, is quickly scaling to join them in the top ranks and may pose a threat to their future growth. Whilst Pandora’s active user numbers are in decline, Spotify has continued to grow, adding about 12 million new paid subscribers from January to July 2017, about 4 million greater than Apple Music over a similar period. Considering that, as an internet radio service, Pandora generates far less revenue per user, Spotify looks set to maintain its position as the clear market leader.

Source: Company Information

Looking Forward: Is Streaming the Future?

As global internet penetration, connectivity, and data analysis continues to improve, one can be somewhat confident that streaming is here to stay for at least the next 5 – 10 years, as long as the business model is sustainable, that is, as long as the music labels and independent producers see enough of the streaming revenues to encourage continued investment and development of high quality musical content.

For a more detailed analysis don’t forget to check out our report here, EquityZen Industry Overview: Music Streaming .

Redfin: Path to IPO

Charlie Joyce | July 20, 2017

Redfin, the Seattle-based real estate brokerage aiming to reshape the industry, recently priced its upcoming IPO between $12 - $14 per share. At this valuation, Redfin would become the latest tech unicorn on the public market. As the company heads towards its public listing, one big question lingers for investors: Should Redfin be valued as a real estate brokerage or as a tech company?

Growth: Tech or traditional?

In their S-1 , Redfin highlights its growth in 81 out of 84 US markets. However, investors will be more focused on whether the company can follow the traditional growth trajectory of a technology stock, or more slowly like a traditional brokerage. Over the last two years, the company has averaged a 46% annual growth rate. By comparison, Zillow, another Real Estate tech company, grew at an average 65% annually during the same period.

(Source: Redfin S-1, Zillow Investor Relations)

The two companies were founded within a year of each other, 2004-2005, with the same mission: leverage technology to disrupt the residential real estate industry. However, by comparison, Redfin’s trajectory does not appear to follow that of typically high-growth technology companies. It is also important to note that Zillow went public in 2011, 6 years after it was founded, and reported profitability in 2011 .

Success in Seattle

Another important question for investors should be how returns will be distributed for Redfin. At IPO, one big winner will be another Seattle-native, Madrona Venture Group.  The VC firm participated in all but the most recent round of private funding, accumulating an ownership position of 11.4%.

Going forward, Redfin’s move into public markets will make it rare among residential real estate brokerages, which are traditionally structured as private partnerships. The company, which has not yet achieved profitability, claims to save consumers an average of $3,000 per transaction and offer commissions to agents which are twice as high as competing brokerages, but will need to invest over $100 million in IPO proceeds to fund additional marketing and tech development before the company can generate profit for shareholders. It is important for investors to consider how long they’ll wait before seeing returns, especially if the company decides to fund further investment.

Big bet on Real Estate

The most attractive aspect of Redfin as an investment opportunity is its massive TAM, or Total Addressable Market. In 2016, Redfin supported transactions representing $16 billion in home value, or 0.54% of its estimated TAM. This implies that Redfin is competing for an estimated $3 trillion of residential real estate within the US market alone.

Currently, the company’s revenue is highly concentrated in its “Top 10 markets” but is showing signs of spreading out its bets. With such high concentration, the company’s future becomes highly dependent on the strength of those individual markets. However, if Redfin continues to provide savings to consumers and incentives for brokers, it may be able to breakout from traditional limitations and obtain an outsized share of that $3
trillion market.

SEC Expands Confidential Filing to All IPOs

Shriram Bhashyam | July 06, 2017

Starting July 10, 2017, all companies seeking an IPO, whether or not they qualify as emerging growth companies (“EGCs”), will be permitted to file their draft IPO registration statements confidentially. This is an important development, as it may lead to more IPOs and is a signal of tone shift at the SEC towards capital formation.


Tech IPO “Down Rounds”: EquityZen Runs the Numbers with Jeremy Abelson and Irving Investors

Phil Haslett | May 25, 2017

The recent Cloudera IPO has re-ignited a discussion about down rounds. How could a private company possibly be valued at $30.92 per share in 2014, and then go public at $15? What could lead to such a corporate phenomenon? Do the valuation techniques of VC firms and Wall Street really differ by such a margin?

Cloudera's valuation was chopped in half between 2014 and 2017
It turns out, down rounds are increasing in regularity, based on data analyzed by EquityZen and Irving Investors , a tech-focused hedge fund managed by Jeremy Abelson. But first…

Not So Obvious: Here's What To Know Between NSO and ISO Stock Options

Nat Disston | May 18, 2017

The world of startup stock options can be pretty opaque. To outsiders, its seems all one does is join a small company, and, if it works, everyone becomes millionaires . For new employees, they often don’t know what they don’t know and are faced with piles of new documents and more questions once they join their budding business. Core to our mission is to help educate employees, companies, and their founders about their stock options and what they can do with their resulting shares .


Q&A with Troy Paredes: How the SEC Regulates Silicon Valley (Part 2)

Shriram Bhashyam | April 13, 2017

The change in administrations at the White House has multifold ramifications for startups. Important among those areas is the Securities and Exchange Commission’s (“SEC”) posture towards Silicon Valley and how that agenda may shift under incoming Chair Jay Clayton. We’ve tapped friend of EquityZen, and former Commissioner at the SEC, Troy A. Paredes to shed some light. You can read Part 1 here .


Q&A with Troy Paredes: How the SEC Regulates Silicon Valley (Part 1)

Shriram Bhashyam | April 05, 2017

The change in administrations at the White House has multifold ramifications for startups. Important among those areas is the Securities and Exchange Commission’s (“SEC”) posture towards Silicon Valley and how that agenda may shift under incoming Chair Jay Clayton. We’ve tapped friend of EquityZen, and former Commissioner at the SEC, Troy A. Paredes to shed some light.


FinTech Outlook: Five Developing Issues to Watch in 2017

Lee Schneider | January 26, 2017

FinTech investment, innovation, and media attention has grown steadily in recent years, and do not look to abate any time soon.

We’ve tapped friend of EquityZen, and FinTech lawyer, Lee A. Schneider, to opine on FinTech regulatory trends to watch in 2017.

Each new year comes with a sense of excitement and anticipation.  Let's wipe the slate clean from last year and focus on five trends FinTech companies and investors should monitor in 2017.

Trump's Nominee for SEC Chief: Implications for Startups and Fintech

Shriram Bhashyam | January 19, 2017

On January 4, 2017, President-Elect Donald Trump nominated Jay Clayton, a private sector Wall Street lawyer, to serve as the next Chairman of the SEC. While the confirmation hearings will tell us a lot about Mr. Clayton’s background, qualifications, and leanings, I can’t wait that long and preview here what the SEC’s agenda may look like in his tenure.

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