In this episode of "Venture Declassified," hosts Ben Pidgeon, Mike Kelly, and Jacob Schpok delve into the intriguing world of secondary markets. They explore how these markets offer a mechanism for current shareholders in privately-held companies to sell their shares to private entities. With a candid approach, the hosts detail how these transactions do not inject new cash into companies but rather enable liquidity for shareholders looking to exit their positions.

The conversation is kicked off by Ben explaining the nuances of secondary markets, likening them to purchasing stocks in the public market but with private entities. Mike and Jacob expand on this by providing real-world scenarios, such as employees at companies like Stripe seeking liquidity before an IPO, or angel investors seeking exits after years of sitting on investments.

A substantial portion of the discussion is dedicated to why secondary markets have flourished in recent years, with Ben attributing this to the scarcity of M&A or IPO opportunities. Mike poses an interesting counter to Ben's point, suggesting that public market regulations may dissuade profitable companies from going public, hence the rise in secondary markets.

The hosts acknowledge that while secondary markets offer exciting opportunities, they're fraught with challenges, particularly in determining genuine market prices due to less frequent transactions compared to public markets. They also touch on strategic considerations, using secondary offerings to keep founders motivated or even save personal relationships, highlighting the real-world implications of delayed liquidity events.

As they wrap up, the hosts reflect on the potential evolution of secondary markets, particularly amid global economic uncertainties and the influence of emerging technologies like AI. An informative listen for anyone curious about the dynamics of private equity and liquidity options.

Key Topics

• Introduction to Secondary Markets

• Importance of board approval and rights of first refusal

• Employee stock options and larger secondary markets

• Interest in buying secondaries among investors

• Risks associated with founders selling significant portions of their holdings

• Importance of modeling out an option plan for potential stock options

• Considering secondaries based on current market and company conditions

Connect

Mike Kelly

• LinkedIn

• Website

• Developer Town

Ben Pidgeon

• LinkedIn

• VisionTech

Jacob Schpok

• LinkedIn

• Elevate Ventures

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The information provided on the show is not intended to be investment advice and should not be relied upon as such. The investors on today’s episode are providing their opinions based on their own assessment of the businesses or topics presented. Those opinions should not be considered professional investment advice. If they start up pitched as a part of this episode, it is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell, subscribe for or buy any securities.