The market for startup shares is getting even weirder
Investors want access to the hottest unlisted companies, however they can get it
“IT’S NOT fun being a public company," lamented David Solomon, the chief executive of Goldman Sachs, earlier this year. Firms should proceed with “great caution" before pursuing an initial public offering (IPO), he warned, owing to the additional burdens associated with being listed. Coming from the boss of an investment bank that makes its money partly by taking companies public, the comments carried a good deal of weight.
Yet even unlisted firms are now struggling to stay truly private. A record $102bn in venture-capital (VC) stakes traded hands in secondary markets globally in the first half of the year, up by 41% from the first half of 2024, according to Evercore, another investment bank. Such transactions can offer early investors and employees a way to cash out without waiting for an IPO. But new and unorthodox methods used by outsiders to get a stake in buzzy startups are proving to be a headache for founders—and a risk for investors.
One such method that has recently become the target of founders’ ire is the Special Purpose Vehicle (SPV). These are established by an investor, typically a vc firm, in a company. Outside investors then buy into the SPV, which provides them with indirect exposure to the startup’s financial future; on the firm’s capitalisation table, where its investors are listed, only the SPV itself appears. The format is not new, but with excitement about artificial intelligence (AI) at fever pitch, so-called secondary SPVs—in effect, an SPV of an SPV—are becoming common, too.
That could cause trouble for startups. American companies with over 2,000 individual shareholders and more than $10m in assets must file financial reports to the Securities and Exchange Commission, a markets watchdog. SPVs also create risks for investors. OpenAI, the buzziest of all AI startups, recently warned that SPVs may violate the transfer restrictions it imposes on its shares, leaving investors with no exposure to the company at all. More than 13,000 customers put money into SPVs via Linqto, a private-market investing platform, before it went bankrupt in July; the amount they will be able to recoup is unclear. OpenAI and Anthropic, a rival AI startup, are trying to limit the creation of SPVs by their direct investors.
Then there are the growing number of private exchanges that offer shareholders in startups the opportunity to offload their stakes to buyers who are typically willing to pay a premium for them. SpaceX, Elon Musk’s rocketry firm, was valued at around $400bn in a tender offer to employees in July, equating to around $212 per share. Investors can currently buy shares in the company on Forge Global, one exchange, for $246. Yet such transactions can potentially be blocked by other shareholders, depending on the rights that have been granted by the startup. Hiive, another exchange, says that only 72% of deals it arranged last year were approved, though that is up from 67% in 2023.
Perhaps the strangest new method of getting exposure to trending startups is tokenised stocks, which are settled on the kinds of digital ledgers that support cryptocurrencies. These are meant to move in tandem with the startup’s shares, but do not provide the holder with an equity stake. In June Robinhood, an online broker focused on retail traders, launched one such offering. To drum up interest, it gifted European customers tokenised shares in OpenAI and SpaceX. OpenAI said the company was not involved and did not endorse the offer.
Some founders may fret about a loss of control over their investor base. But as startups stay private for longer and enthusiasm for AI becomes ever more feverish, the desperation to get in on the action will only grow. For their part, outside investors can expect to pay more, and own less.
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