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Planning Your Own Funeral: Why FinTech Firms Must Prepare for the Worst

Private MarketFintechContingencyInsolvencyStartupBankrupt
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Sean Troy   August 10, 2016

As humans, we are programmed to “hope for the best but plan for the worst,” a philosophy that is often evident in actions we take throughout our lives. Working professionals, even those with healthy incomes, set up savings accounts to create a financial safeguard against loss of employment. Midwestern families build underground shelters to protect their families from tornadoes. Parents purchase cars with built-in airbags, so that their children are protected in case the unthinkable happens. We plan for the worst not to buy a license to act recklessly, but rather to take care of those who depend on us during extreme times.


It is just as important for companies to take similar measures to protect against unfortunate, yet entirely conceivable disasters. This planning is especially crucial for startups. As Forbes has kindly reminded its readers, 90% of startups fail. One of its advised conditions for creating a successful startup: design a product that is “perfect for the market”. Certainly no easy task. What happens in the end if a product isn’t quite…perfect? What happens if that 90% becomes 100%? All of a sudden, customers who had depended on the company’s services would be left without a safety net.


NASDAQ, SecondMarket, EquityZen, and Private Market Secondaries

Private MarketSecondmarketNasdaqPre-IPOSecondary Market

Atish Davda   October 22, 2015

NASDAQ's acquisition of the balance of its NASDAQ Private Market (NPM) brand and SecondMarket is a step forward for the private market. Their further pursuit of this pre-IPO market is one of the stronger data points supporting what EquityZen has said from its inception: there is a structural shift in capital formation. We are happy to see NASDAQ shares our view that the trend is here to stay and the market's growth prospects are promising.

It is important to look at NASDAQ's focus on companies on the precipice of an IPO in context of their public market business revenue. NPM is their way to build relationships with companies and win their IPO business. That, along with a focus on institutional investors provides companies an option in the final stage of their private life.

NPM's solution has provided yet another way to solve the access problem for large institutional investors. These institutional investors now have the choice of investing via a secondaries fund, their usual group of offline brokers, and NPM. Folks that should be paying close attention are those competing for the infrequent, bespoke, large blocks.

Yet, the SecondMarket acquisition does not move the needle for the typical accredited investor. Their access to investing in later stage private companies is not improved at all. EquityZen is one of the only platforms that gets them a seat at the table to invest in mature private companies for as little as $20,000, and remains committed to democratizing access to this asset class.

EquityZen establishes relationships with private companies well before public-market exchanges will pay attention to them, thereby earning their trust. In today's world of on-demand everything, EquityZen walks through the front door of these companies, demonstrates the power of facilitating 'on-demand' secondaries. While there is a place for structured liquidity programs, it does not always make sense to require shareholders to wait for an elaborate investment banking process to be contemplated, negotiated, and finalized.

As companies grow within the private market, employees and early investors' timelines for liquidity differ from that of the company, which makes sense. It is not surprising that few companies want to tell their employees, "just wait until the next liquidity program" to buy a house or prepare for the birth of a child. For issuers who recognize the benefits of not imposing the company's timeline on its shareholders and employees, there's EquityZen. EquityZen provides the ability to share the value created by employees, with those employees, in real time.

SecondMarket has built a great institution and led the first wave of secondary trades in private companies. EquityZen remains focused on providing on-demand secondaries, further enhancing access and liquidity in the private markets. We are happy to see additional buy-in from leading a public market player like NASDAQ.