Weekly Update #186: Lessons Learned in San Francisco
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My trip to San Francisco: 3 lessons learned
As you may know, EquityZen is based in New York City. However, given that we focus on the pre-IPO tech asset class, a majority of the companies we offer (and the investors that participate) are based in the Bay Area in California. As a result, we frequently find ourselves in San Francisco and Silicon Valley to meet with clients and to network.
I just returned from a quick trip last week, and thought I'd share three learnings related to pre-IPO investing:
1. Private Wealth Management is increasing its focus on pre-IPO tech investments
Wealth Managers, particularly independent ones (ie: those that are not affiliated with larger financial institutions such as UBS or Morgan Stanley) are spending more time looking at private tech investments. They can be in the form of primary investments, or on a secondary basis. Based on my conversations, wealth managers see an opportunity to outperform their peers by finding unique investment opportunities outside of traditional channels (public equity, bonds, real estate, insurance). It also helps that they can source these investments directly, and don't have to pay Management Fees and Carried Interest to fund managers.
2. Groups of individual investors are forming investment LLCs
Groups of friends, colleagues, and affiliates are forming investment funds in the form of LLCs. The cost to form these entities is minimal, and allows a group of individuals to gain more diversified exposure to multiple companies. Additionally, a group of 15 individuals deepens the breadth of technical understanding across various tech sectors (machine learning vs social media vs transportation). These LLCs can quickly invest in early-stage rounds and also purchase shares on the pre-IPO secondary market.
3. VCs still have mixed reactions to the secondary market
Some VCs remain wary of secondary liquidity. They feel that liquidity may disincentivize current employees, and could also serve as a distraction within a business. On the other hand, newer vintaged funds take a more pragmatic approach and are encouraging secondary liquidity beyond just the founder level (which, traditionally, had been the only employee level that could get liquidity!). The "pro-liquidity" bucket acknowledges the cash needs of certain employees, and also trusts that there is reputational (and therefore, recruitment) benefit to allowing current (and former) employees some liquidity for their holdings.
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