Equidate’s New Marketplace for Private Stock Speeds, Simplifies Transactions

Feb. 11, 2015 - PRLog -- Equidate, Inc. has created a new platform that enables employees of start-ups who own private stock to monetize shares practically overnight, co-founder Sohail Prasad announced today.

Equidate (http://www.equidateinc.com/) is believed to be the only secondary market that works directly with employees.  Other secondary markets require employers to establish systems for selling shares that can be time consuming and difficult to set up.

Employees benefit because they obtain cash they can use today instead of waiting years to cash in.  Investors benefit because Equidate provides an opportunity to invest in pre-IPO companies before their shares reach full value in the public market – and Equidate provides the only opportunity to invest in shares of companies that do not have an agreement with a secondary marketplace.

And owners of start-ups benefit because they have a quick and easy way for employees to monetize their shares, so they can better attract high-quality talent.

“Before Equidate, finding a way to liquidate even a small number of shares in a growing startup without involving the founders and board of directors was nearly impossible,” Prasad said.  “Even the small number of companies that allowed employees to sell shares found it difficult and time consuming to establish systems for selling stock.”

In addition, company founders were reluctant to allow such sales, because it meant taking on unknown investors.  They also risked exceeding the cap on the number of shareholders allowed for private companies.

Equidate’s platform avoids these challenges, because it does not buy and sell stock.  Instead, it monetizes the shares using a contract that grants the investor the upside potential in the stock.  The employee maintains the voting rights of the shares, so the employer doesn’t have to worry about shares being bought by someone outside of the company, who might be entitled to nonpublic information under federal regulations.

Prasad describes the Equidate contract as “a cross between a derivative contract and a collateralized loan.”

Prasad’s idea for Equidate came from his desire to help a roommate who owned private stock worth millions of dollars, but could not afford to take a trip to Europe, because his stock was illiquid.

“The time before a start-up goes public has been lengthening,” Prasad said.  “An employee who has worked hard and taken risks to help a start-up succeed typically has to wait years to get cash for those efforts.  Equidate was created to address that issue.”

At the end of 2013, the median time from initial equity financing to an initial public offering was 9.4 years, which is three years longer than it was in 2011, according to Ernst and Young (http://pando.com/2014/01/21/dropboxs-big-funding-round-is...).

Even when employers set up systems that enable employees to sell shares on a secondary market, regulatory requirements typically result in each sale taking more than 90 days to complete.

“Owners of private stock are looking for liquidity,” Prasad said.  “When a transaction takes a quarter of a year to complete, it’s not providing liquidity.”

As sellers learn about Equidate, a growing number are using its platform.  Equidate already has completed millions of dollars’ worth of transactions, as employees of pre-IPO companies such as Dropbox, Airbnb, Square, Pinterest, Palantir, Box, GoPro and other companies have begun to “equidate” some of their shares.

By providing a more attractive market for sellers, he said, Equidate is providing a more attractive market for buyers.  Typically, only very wealthy investors had an opportunity to invest in pre-IPO shares and shares offered during an IPO.  Now, any accredited investor can purchase Equidate contracts.  Accredited investors are individuals with a net worth of at least $1 million or annual income exceeding $200,000.

“Investors can typically purchase shares at a much lower price if they are able to invest before the IPO,” according to Prasad.  “Twitter, for example, had an IPO price of $26 per share, but the average investor was able to invest only after the stock began trading and the price jumped to about $45 per share.”

Equidate also gives startup companies a tool to attract high-quality talent.  Start-ups can’t compete with the compensation offered by large, established companies, according to Prasad, and the most talented employees are unlikely to risk working at a start-up if their equity in the company is going to be tied up for nine years.

Equidate co-founders Prasad and Samvit Ramadurgam have both previously founded companies backed by Y Combinator, the Silicon Valley-based incubator.  They also have experience at high-growth startups, such as Chartboost and Asana, and Prasad has invested in high-growth start-ups Zenefits and Coin.

Equidate’s founding team includes Gil Silberman, who managed legal work for LinkedIn, Craigslist and OpenTable at their founding and early stages, and Philip Reicherz and John-Paul Teutonico, who were partners at Second Market, Inc., which became the largest secondary market for private stock.

About Equidate, Inc.

Equidate, Inc. of San Francisco, Calif., is the first secondary market for private stock that enables employees of start-ups to monetize shares practically overnight, rather than waiting years for their company to become public or be acquired.  Equidate also gives private investors access to top pre-IPO companies and helps employers attract top talent. For more information, visit Equidate’s website at www.equidateinc.com.