The landscape of startup investing has dramatically shifted, with companies staying private longer than ever before. This extension of the private lifecycle has created a significant challenge: a lack of liquidity for early employees, founders, and investors who have poured years of effort and capital into building these businesses. How can they access the value they’ve created without waiting for a distant IPO or acquisition? Atish Davda, founder and CEO of EquityZen, created a solution. In this conversation with Nataraj, Atish breaks down the world of secondary markets. He shares the personal story that led him to start EquityZen, explains how the platform standardizes and simplifies private share transactions, and details the company-friendly approach that has earned them the trust of major late-stage startups. He also dives into different investor strategies, the outlook for the IPO market, and why building a trusted brand is the ultimate long-term play in this evolving space.
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Nataraj: So let’s start. A good place to start would be, for a lot of folks who don’t know about EquityZen, what is EquityZen and how did it get started?
Atish: EquityZen is a marketplace for private company shares. We have been around for about 13 years and our mission is to build private markets for the public. This is what we do. We work with founders, employees, and early investors of late-stage private companies—large companies that 20 years ago would have been public but are still private today. We help them get some liquidity, meaning they can sell their shares, and we match them up with investors on the other side that want to invest in these companies but can’t find them on their Fidelity account or their Vanguard account because they’re not a publicly traded firm yet. So EquityZen works with the company to get their shareholders cash and to get new investors access before the company actually goes public. And we’ve been around, like I said, since 2013. How the company got started? Well, this is in some ways a very personal story for me and not unsurprising for many folks. I had a personal need. I’ll just give you my quick background. I started my career at a quant hedge fund. I studied computer engineering and mathematics. Basically, if anything had to do with numbers, it made sense to me. I was fortunate. I worked at a quant hedge fund called AQR Capital. My work there was excellent, and it was a multi-billion dollar hedge fund where a lot of the entrepreneurship occurred maybe 10 years before I had joined. And so I wanted to be an entrepreneur, so I joined a startup as its first employee to learn. My equity in that company and a few other companies I had just been consulting for ended up being worth a little bit of money. And because I wasn’t getting paid the startup share, the hedge fund money anymore, I wanted to liquidate some of my private company stock. Well, because I wanted to liquidate $25,000 worth of stock or $50,000 worth of stock and not $25 million worth of stock, I was effectively out of options. I didn’t really have any brokers I could go to, didn’t really have any bankers I could go to. And so that was really the genesis behind what has now become EquityZen. We serve these private company shareholders that are big believers, supporters that have been there for the value creation, supporting the private companies. It’s just that if you work at Google, you can just sell your Google stock and pay for the house, or in my case, an engagement ring, which is what I wanted to sell my stock for. And if you’re a private company, you can go to EquityZen and allow your shareholders to do that in a regulatory sound manner and with the company’s blessing.
Nataraj: Before EquityZen existed, how did people find liquidity in the market? Startups existed forever, for the last 30-35 years. Was there no market at all? Or was it more like happenstance that you knew someone who was looking to buy these shares? I was working at early Yahoo, and I know some investor who is looking to buy. He probably doesn’t have a venture fund, but he’s trying to find late-stage company shares. Is that how it was working back then?
Atish: That’s a great question. Look, there’s been about three stages of evolution in the private market. Stage number one, companies used to go public when they were three, four, five years old. Amazon went public famously as a four-year-old company. Today, most companies that go public in the tech sector are teenagers, especially if you think about over the last three years, how closed the IPO window has been. Basically, if you’re an 11-year-old company and you wanted to go public in 2022 and you missed that window, you’re now a 14-year-old company and probably you’re not going to go public for another six to 12 months. And so before you know it, your shareholders have had to wait 15 years, your investors have had to wait 15 years to get liquidity. What used to happen before in phase one is effectively companies would just go public. And then you saw what happened in the dot-com boom. A lot of companies went public. Most of them didn’t survive. Some of them have survived since then. And it was the public investors that effectively took on the risk of providing liquidity. Phase two of the market is when there were basically six or seven companies. You have Facebook, LinkedIn, Groupon, Pandora, Pinterest. I mean, these small number of companies had grown to be multi-billion dollars but they were still private. So larger, sell-side capital markets desks were trading their stock. Goldman Sachs very famously conducted a lot of secondary transactions for Facebook, but it wasn’t $25,000 shareholders or $30,000 investors. It was $25 million worth of blocks, and hedge funds and family offices invested.
Nataraj: In a lot of ways, it’s like a version of selling your IPO stock because that’s sort of what happens when a company is going public, right? You have a roster of your clients who want to invest and then you allocate shares to that roster of clients, and pretty much very high net worth.
Atish: Yeah, it’s totally a heavily negotiated and heavily brokered transaction. That’s what phase two was about. And Facebook got arm-twisted into going public actually because there were too many secondary transactions the way Goldman was doing them, Goldman and other firms. And what ultimately ended up happening was that Facebook was forced to go public. That kind of put a chill on the venture secondaries market until EquityZen came along. And what EquityZen has done is effectively done two things. One, we have standardized the process of conducting these transactions. Look, when you’re transacting $50 million worth of shares, it makes sense to heavily negotiate each contract. Those economics don’t work if you want to trade $50,000 worth of stock. And so what we’ve done is the traditional technology company thing, which is build up the infrastructure and then amortize the paperwork and the cost over thousands of transactions. And by doing that, we can reduce the artificial minimum of conducting these transactions. Now, you don’t need $10 million to transact in private company stock. You can do it for $10,000, thanks to EquityZen. So that’s one thing we did was standardize the process. And the other thing we did was by making it available to accredited investors via our website, via technology. And this was right around the time that AngelList was coming up and crowdfunding was becoming more popular and people were getting comfortable actually deploying capital into an investment online. And while AngelList focused on the early stage of venture and Schwab continued to service the public companies, EquityZen kind of filled that hole in between. If you’re a series C but not yet a public company, you can now invest via EquityZen. So those are the two things that we kind of, I would say, reignited the secondaries market back in 2012, 2013.
Nataraj: EquityZen and AngelList have a lot of similarities from what I can see as a pure consumer or someone who has seen EquityZen and participated in one deal on EquityZen and plenty on the early-stage side on AngelList. And AngelList, I think, has a different set of products. It has sort of an early-stage fundraising product, which is slightly different than what EquityZen does, although there are some secondary transactions that happen on AngelList as well. Can you quickly talk about what type of standardization you brought? Like what are the couple of important terms that investors or even early employees who are selling the stock are looking at? Like I know for early stage the stage counts, if it’s a convertible or direct equity, when it matures, what is the discount? Is it a SAFE or a non-SAFE? Those are the terms that I’m usually familiar with, but for EquityZen, what are the two or three terms that are actually making or breaking the deal?
Atish: Yeah, great question. Before I say that, let me just draw a quick parallel to early-stage investing, which I think a lot of folks are generally familiar with. In early-stage investing or crowdfunding or the things AngelList became really popular doing initially, it’s the actual company that’s raising money. We call that in our parlance a primary transaction. So this is a transaction where the company is issuing new stock, whether it’s in the form of a note or SAFE or new common stock or preferred stock, they’re issuing stock. The company experiences dilution and all the money that’s raised goes to the company in order to fund operations, pay salary, rent office space and what have you. What the secondary market does, which is what EquityZen does is again, conduct secondary transactions. In this situation, when we conduct a transaction in some company, Instacart, it’s a public company now and so I can talk about it. When we conducted transactions in Instacart, Instacart wouldn’t actually get any money. Let’s say we do anywhere from $10 million or $100 million of transactions in Instacart. Instacart itself doesn’t actually get operating capital from them. It’s the shareholders who already own a piece of Instacart. They sell their shares, get money back, and new investors now get to basically own equity in Instacart. So that’s just one key difference between early-stage and late-stage. And because of this, there’s a difference in asset class returns. Early-stage investments are very famously power-law investments. You’re going to make 30 investments. You’re going to lose your money on 15 of them. You’re going to return your money on 10 of them. And if you’re lucky, five of them will earn you back all the money that you’ve basically invested and lost. Late-stage investments are very different. These are doubles and triples. You’re not just swinging for the fences for the home run. And you’re getting a lot more established businesses. And so now to answer your question, what are the things that matter? What do people look for when they’re thinking about investing in this asset class? Well, first of all, you should look at your whole portfolio and you say, I have a certain amount of money in public stocks, a certain amount of money in bonds, a certain amount of money in early-stage venture maybe. Do I have anything in between where on a risk-adjusted basis it’s a more established company, but there’s still a lot of value to be created? So you should think about allocation of how much of your portfolio you want to put in. Then you should think about what your sophistication level is. Do you want to invest in one of EquityZen’s multi-company offerings? Meaning I write one check, I’m going to write a $50,000 check or $10,000 check, and I’m going to get access to 20 companies. Or do I want to invest in individual companies? I’m going to write 10 $10,000 checks or $10,000, $50,000 checks and make my own portfolio. So I think that’s kind of the next level of making a decision of do I want to buy an ETF, if you will, or do I want to pick a single stock? Then the next level of deal evaluation is what series of stock am I buying? Am I buying preferred stock? Am I buying common stock? What is the discount to the last round of capital or premium to the last round of capital? And of course, because these are more established businesses, you can do a little bit of research on what the revenue stream looks like, what the management team looks like, who the other investors are. So Sequoia just puts money into this company. Sequoia has, first of all, a fantastic track record, but also way more resources than the average individual investor does. And so Sequoia and Andreessen Horowitz, Benchmark, you kind of have your top list of investors. If they have recently put money in, they’ve kind of done their work and established a price point. Well, now it’s a lot easier for you to all of a sudden say, well, it’s a private company. I don’t have public stock information. How do I get comfortable with it? And in this way, it is similar to earlier stage investments, where usually in early-stage investments, there’s a VC that puts money in, does all the diligence. And then you have a bunch of angel investors who are basically tagging on and saying, yes, I will also put money in. So in an essence, you’re kind of borrowing from the diligence that institutional investors have done and knowing which institutional investors’ investments fit your return profile. That’s probably where a lot of investors ought to spend a bit of time understanding like, yes, I understand Benchmark’s portfolios, they invest in marketplaces, they’re excellent at it. This company is a marketplace. Maybe this is a good opportunity for me, or maybe this is not a good opportunity.
Nataraj: Talking about the multiple products, in terms of your business, which is the more successful product for you? Is the portfolio offering a bigger business or are individual transactions a bigger business for EquityZen?
Atish: Yeah, for us as a business, certainly the single-company transactions, that’s what we’re known for. That’s a larger business. I think if you’re an investor learning about EquityZen for the first time, the real question I would ask is, what is your goal? Is your goal that you want to build your own portfolio? You’re familiar enough with the technology industry, you do your own research. I’ll give you an example. If you’re a security engineer that works at a marketing firm, you’re probably a pretty great person to be able to determine the difference between cybersecurity company A and cybersecurity company B. If you’re a marketing executive at an engineering company, maybe you’re great at determining which new marketing tech company is better than the other. So within certain sectors, people are going to get more value out of establishing their own portfolios by choosing single names. And in other sectors, they may say, you know what? I don’t know anything about artificial intelligence. I can’t tell. I can’t keep up with which company’s beating which other company. I just want to invest in the sector. Fine. So maybe you can make a thematic investment. So it’s more a matter of what makes more sense for the user. From EquityZen’s perspective, certainly the bulk of our volume happens on the single-company side. And I think that’s more a function of where the market is right now. We are still very much in the early days of this market forming. So if you take a look at the typical customer lifecycle, we’re in the early adopter phase. The folks that use the beta version of a product, not wait until the final version is released. And so even though we’ve been in business for 12 years, 13 years, and even though we have this fantastic track record, I would say we’re still probably in decade one of three before this entire cycle continues to grow. And the next 10 years are actually going to bring that next segment, the folks that really say, I don’t know this company from that company, but I know I need an allocation here. And so I think for the last 10 years, brokerage of individual companies has been the bigger segment. And over the next 10 years, if I were to fast forward, no doubt that more structured products will be the larger business segment.
Nataraj: The way I always thought of secondary transactions is like betting on your unique knowledge in a lot of ways, where it is less risky than early stage, because even if you have a lot of knowledge in a specific sector, it’s a very hard bet in early stage. Like the security engineer example, you cannot really identify a Wiz or something like that when the team is three people. But when the team is 100 people, when a couple of well-known VCs have invested, you can probably convince a Wiz employee to sell some of the equity to you. So I always felt like secondary transactions are for these sophisticated investors or sophisticated individuals who want to acquire equities in companies they are super confident about. That’s how I always saw secondary transactions.
Atish: But first of all, let me just say you’re spot on. And if you look at history, typically you have sophisticated folks doing something, and then people realize that’s where the sophisticated money is going. So then people come up with products that are versions of the sophisticated strategy, more for the less sophisticated investors in the space. This is exactly what happened in the liquid alt movement. You had institutional investors… one of my first projects at the hedge fund, a strategy that $250 million check writers get access to, was to convert this into a mutual fund that my mom with $2,500 in a Vanguard account can access. So I think in that way, you’re spot on, and that’s candidly what we’re doing. Institutional investors have invested in late-stage venture for 20 years, 30 years. What EquityZen is doing is bringing that access, making it available to smaller check writers first, and then eventually the folks that don’t even need to be in the ins and outs of technology every day. Their financial advisor will actually just find our ETF equivalent or mutual fund equivalent for them and say, we’re going to put 1% of your portfolio in this growth bucket, next.
Nataraj: Yeah. So companies in the sector usually, at least on the early stage, where they’re doing primary transactions, they’re always taking some amount of carry in their compensation or in their business model. They have a standard, like an X amount of cost structure plus an equity component of it. Is EquityZen also taking some equity component of it to have a stake on the upside or is it just purely per-transaction capital cost?
Atish: Yeah, so I mentioned we have two products. Product one, we operate exactly like a marketplace. We do not take carry on top. Frankly, I think that would dissuade a lot of people from putting money in. And therefore, what we do is we effectively only charge a commission to the buyers and sellers. In this product line, we do take carry. This is more of a traditional kind of managed fund product. And so people put money in, we charge a small management fee, and we charge a carry. And all of this is less than the two and 20 kind of products. However, there are two different product suites designed for two different use cases. And so in one case, what we’ve learned is a lot of clients don’t really want to pay carry on individual names. Frankly, AngelList convinced people to do that, and that’s a phenomenal trick that they pulled and it’s fantastic for them as a business model because even if you build a portfolio of 10, if one of them ends up doing well, the carry pays off. Later-stage investors, a little more sophisticated, don’t really want to do that. But on this side, they’re only portfolio-based kind of carry calculation.
Nataraj: I also think carry works when they have a syndicate-like product where you are basically incentivizing a lead to bring a good deal. And like, why should he offer his work to you? It’s that sort of alliance. I think that’s why it still works. Even though a lot of competing products are trying to reduce the carry component, and I think we’re trending down towards zero eventually. But at least that’s the reason it worked in my view.
Atish: I’m sure that’s a big part of it. And look, in any market, as the level of familiarity grows, the animal spirits tell us that people will just arbitrage away inefficiency.
Nataraj: So today, what is the state of business? Give us a sense of how many transactions happen on EquityZen, how many assets are under management.
Atish: Yeah, so we’ve conducted almost 50,000 private placement transactions. We’ve conducted transactions in 450, close to 500 of these large private companies. About a third of these companies have already gone public or gotten acquired in M&A, and therefore we’ve returned capital to investors. And a bunch of capital that we’ve returned just gets recycled. The other thing I’d like to point out is we have around 700,000 households on our platform. But it’s heavily skewed to the investor side, right? The majority of the users on our platform are investors, meaning they’re actually trying to access these investments for the first time. It kind of makes sense. Most people don’t work in technology, and most people don’t invest in early-stage venture so that they become late-stage. And so a smaller segment of our user base is shareholders. But when shareholders get liquidity, usually it’s their first or at most second time coming into money. At least a portion of those actually end up becoming investors too, just because they say, again, like the examples we talked about, I know the difference between this tech company and that tech company, I’d like to participate. A couple of other stats that might be relevant, just to give a size idea. We manage over 2,000 special purpose vehicles right now. So it’s not just one-to-one transactions we conduct. We also spin up SPVs, people invest in SPVs, the SPVs sit on the cap table of all these companies. And we have between one and a half and two billion of active investments, not counting all the stuff that we’ve already processed. And of course, for the last few years, we haven’t seen that many exits, but again, in like 2020, 2021 and prior, there were a lot of exits that we processed, so all those returns are not counted in the one and a half to two billion estimate.
Nataraj: What are some of the interesting stories or examples of some of those exits that happened in 2021, which you can probably talk about?
Atish: Yeah, well, I guess one thing that’s worth saying out loud, maybe this is more of a nuance of the secondary market compared to the primary market, is EquityZen operates as a broker, right? We’re a matchmaker between buyers and sellers. But unlike most marketplaces, we operate a three-sided marketplace. So we have a seller of stock, we have a buyer of stock, which is what most marketplaces have. But then we have the issuer, which is the company in which the stock is. And EquityZen is really the only platform in our industry that very much gives the issuers, the companies, a seat at the table. Issuers, we don’t charge them anything. We’re not beholden to them about anything. But we have taken the approach that because it’s their company’s stock, they should have visibility into who’s buying, who’s selling, and to actually get permission to be able to say yes, I approve this transfer restriction, or I waive my right of first refusal. Maybe it sounds obvious, but that’s not always the case. We’re the only ones that very much put companies at the top in terms of the decision-making tree. And what that allows us to do is really establish a relationship with the company. So for example, sometimes we will have companies say, hey, EquityZen, we’re in the middle of raising financing. We don’t want a secondary transaction to be price-setting right now, even though people are willing to pay a crazy amount of money. It actually hurts our negotiations with VCs or with private equity firms. So we’re going to put a one-month block on these transactions. And so that’s the kind of dialogue that we establish with these companies. So they kind of tell us, Hey, look, there’s a blackout window coming. We’re pursuing an IPO. Those are the types of dynamics that exist because we’ve taken a very company-friendly approach. And that’s just one example of how this is different from the rest of the peer group, perhaps.
Nataraj: But what if the company… so you mentioned right of first refusal, often referred to as ROFR, which means that a company can deny a secondary transaction because they have the first right to purchase that stock at that price, right? So if an early employee wants to sell a stock and the company doesn’t have a ROFR, EquityZen would still block the transaction? And wouldn’t that drive away certain business to your competitor, and they might execute that transaction elsewhere because technically the company can’t stop it if they don’t have ROFR rights?
Atish: Let me clarify a couple of things you mentioned. First, I have not come across a company that does not have a right of first refusal in the 13 years I’ve done this. And as a private company owner myself, I want a right of first refusal on my stock. And there are very legitimate and sensible reasons for that. However, a right of first refusal is not the same as a blocking right. So a right of first refusal is effectively the company saying, I don’t want that investor on my cap table. That investor is actually funded by my competitor. I don’t want that person on my cap table. Or that investor is from a different geography and for regulatory reasons, I’m not allowed to have that investor in my cap table. So what I will do, shareholder, is I will buy your shares. Effectively, it’s a matching right. It’s a right that says, shareholder, you will still get your liquidity, but that investor is not allowed to come in at this price. That’s separate from the blocking rights that I think you’re describing. And so you’re absolutely right. What some of my competitors do that we will not do is they will effectively conduct a transaction without actual share certificates changing hands. They will conduct what are called forward contracts, which are effectively IOUs. If you were a shareholder and I was an investor, and I was using some other company because EquityZen does not do this, one thing that could happen is you could say, okay, yes, I agree to sell you 100 shares at $100 a piece. Cool, no problem. I give you the money. In theory, I have the equity exposure. But if I’ve entered into this forward contract with this funky SPV with multiple other SPVs or whatever, and then the company actually ends up being Uber, and you regret selling your stock. In 2025, you took my money. And in 2028, you might have $10 million from your 100 shares because the company just blew up in a great way. And you might say, you know what? I don’t want to sell all 100 of my shares. In that scenario, what I have done is not only illegal from the standpoint of I violated the company’s restriction. What you’ve done is illegal because the company has changed restrictions for a good reason. But now I have no recourse to this. Like if you move to Singapore and basically change your phone number, I’m not saying you would ever do that. But of course there are people who would do that. As an investor, I’m completely exposed. And from a company standpoint, they don’t like that. There are companies today that are dealing with this and they’re going out of their way to educate their shareholders and they’re saying, hey, there are brokers out there that are claiming to sell you shares and claiming to trade your stock. Let me be very clear. We only work with a small number of preferred partners like EquityZen, and outside of those partners, you should be careful about what it is that you think you’re buying or you think you’re selling because we are not endorsing that. And that nuance is just something I want to bring up because it’s not a real concern when the counterparty is an early-stage company.
Nataraj: I think there is one company whose secondary shares keep trading higher and higher and are traded everywhere. I think I know which company this might be. This is SpaceX. I’ve been seeing this company’s secondary offers everywhere from every Indian WhatsApp group to every online portal. Someone is offering a SpaceX secondary offering. How many of these are legit versus how many of these are like the second category of IOUs that you’re talking about?
Atish: I certainly cannot speak to generalities on that front, certainly not for a specific issuer. What I can say very clearly is, EquityZen conducts transactions with the issuer’s knowledge and with the understanding that we give the issuer basically the visibility, hey look, here are the shares, here are the investors, we want to trade, are you okay with this or not? And time and time again, we have walked away from revenue that we could have just kind of skirted, but that’s not how EquityZen operates. It’s not how we want to operate unless the broker that you’re using can say that, unless the fund manager that you’re using can say that. I always try to caution people about what it is they’re buying. Cause at the end of the day, you are the one parting with your money. So it’s your responsibility to make sure that you understand what it is that you’re buying and whether or not there’s a trusted platform. There’s a reason in the 13 years that we’ve been in business, we’ve seen, I don’t know, half a dozen to a dozen platforms come and go. Some of them because the government told them to stop and some of them because they made so much money by doing some of these things that they didn’t need to work anymore. And our approach the entire time has been, we want our name to be synonymous with trust. And that means we’re going to have to say no to a lot of things. And in the long run, it’s going to pay off and we’re seeing the effects of it now. EquityZen is a referred platform for many companies who say no to most other brokers out there. In fact, we sometimes get assigned a right of first refusal. A company says, Hey, I received this transfer notice from this other broker. I don’t want that broker or their client on my cap table, but we don’t want to execute a right of first refusal at this price. So if you can do this, we have an assignment right. We will assign a right of first refusal to you to do this. EquityZen will then get tagged in, in order to be the broker of choice. And candidly, that doesn’t just happen. That happens because of years and years of basically being a trusted partner with a lot of issuers and effectively sometimes gritting our teeth and doing the thing we don’t want to do, which is to say no to revenue at the end of the day. But again, long-term perspective, it’s a no-brainer decision.
Nataraj: You also have some interesting data I feel because you also gauge demand or interest in different companies when you go to your platform. How do you use that data either to create new products or do you use that data to approach companies and say hey there’s a lot of demand for transactions, how are you thinking about secondary transactions and providing liquidity? How do you leverage that data?
Atish: Yes to all of the above. The only way we don’t leverage the data is we don’t actively sell or license the data like many of our peers do. And our view on that candidly is there’s no philosophical reason why. It’s pure and simple. The market’s early. So anyone—I’m a former quant, so data is very pure to me when it comes to utilizing data in a statistically significant way. Not everyone does that, that’s okay. And so our view on it is the market is still nascent. It does not make a ton of sense to use the data unless it’s a tiny portion of a larger model. Using private company transaction data should be one factor out of many factors in your investment decision. And unfortunately, a lot of companies out there are trying to sell their data and pretend like this is equivalent to public market data. Public market transactions are orders of magnitude more often than private market transactions. Private market transactions are actually more similar in terms of frequency to house sales compared to public company stock sales. And many of our peers are not drawing the distinction and papering over it. And so the only ones I think using data well, maybe as intended, let’s say, are institutional investors and sophisticated individuals who are saying data is one of my inputs. It really informs on the margin. It’s going to inform whether I’m going to pay 12 bucks or 13 bucks. It’s not a yes or no decision for me on data. And I think I would draw a parallel to the crypto world where you have a lot of supporters of various cryptocurrencies who are effectively acting like day traders. The data says the stock is going up, so I’ll invest or it’s going down, so I’ll sell. And we just are not that place where people would make purely speculative bets. This is more of a buy and hold investment in your portfolio from an allocation perspective. Again, the very first thing I told you when you asked me is, the very first decision to make is, what is my allocation to the space? Then determine all the other things. And so how do we use our data? We use it to talk to issuers. We use it to inform investors. We use it to inform shareholders. We publish cap tables. We give our users a range in which transactions are happening. And all of this we’re happy to provide to the issuer because ultimately we want the issuer to be a partner with us and that’s true. What we don’t do is use our data to kind of reel in investors who don’t really know what they want to do. We want people who know what they’re buying basically, if they’re going to buy.
Nataraj: And I don’t know what the regulation allows you or doesn’t allow you, because any company has to market itself. So how does EquityZen market itself to a future employee or early investor who wants to sell or a future investor who’s thinking about maybe expanding or diversifying their portfolio? How do you market EquityZen? Because it’s a very regulated industry, right? And these are very niche transactions for a lot of individuals. So how does marketing for EquityZen work?
Atish: Heavily regulated with good reason, I would argue. How does EquityZen market itself? We stay away from individual company marketing. So we will not market a specific offering. That’s just not our world. What we want to do is we want to educate. And then we want investors to self-select in. We want to put forth a knowledge base that we provide, one of the more detailed FAQs I’ve seen that we provide. We want people to read, spend the time to read, and not just make TikTok videos and kind of help people very quickly get brought in. Our view on this is, this is a serious thing you’re doing. Your money is an important asset. You should be careful with it. And so we almost build in a little bit of friction into this process. And I think my product and my marketing team are not always happy with me about that. But the way we do this candidly is we say, look, we’re in this for the long term. Let’s focus on educating people. Let’s help them make a decision about whether or not they want to invest. Then if they decide they want to invest, then they can go through and ask us, what do you recommend? And at that point, we said, we will not recommend individual companies or investments. But we will make the data available to you for you to make your own decision. So we always go out of our way to only educate people that this option exists and here are the benefits and risks of this option. And then sometimes clients will say, hey, I read all this stuff, but I still don’t know whether to invest in company A or company B. And so what we will do is we will say, look, we are not going to give you a recommendation. But we have a financial advisor that if you don’t have one, we’ll refer you to one. And because their buyer base has to be accredited, there’s a wealthy household that’s a typical investor. A lot of times, the vast majority of our users don’t actually have a financial advisor. So we’ll actually connect the dots and say, you should talk to someone who can give you more holistic advice. That’s not something we’re going to do. And so it’s very much about content-driven, education-driven, mission-oriented stuff as opposed to individual deal and transaction oriented.
Nataraj: So for both early-stage and secondary markets, the exit is IPOs. Obviously, the next secondary transaction might be another exit, but IPOs are measured at the exit points. Are there any exit differentiations when it comes to traditional IPOs versus direct listings? Is there any difference that the stakeholders see in terms of an exit perspective?
Atish: Yes, and let me add, if you invest through one of EquityZen’s SPVs, chances are good that you’re actually going to be eligible to sell your holding before the underlying company goes public. And we’ve seen this in the last three years. As an example, for the last three years, the IPO window has been pretty tight. So very few exits have taken place. However, if you bought five years ago or eight years ago and your goal was to hold for five to 10 years, you’d just have to wait until the IPO happens, right? Unless you bought it through us, in which case, chances are good that what you may be eligible to do is actually say, you know what? I hit my return target and I hit my holding period. If there’s a buyer for this, I’m willing to list it. And investors can go and kind of seek liquidity for their own holdings. So that is an exit avenue for the individual investor that is decoupled from the actual company going public. Your question was about a direct listing versus an initial public offering. There’s just the concept of a lockup. Typically in an initial public offering, what ends up happening is, as we talked about earlier, you have insiders who list, existing shareholders who list, and they get some liquidity maybe. Usually, the vast majority of liquidity they get is after the lockup window. And the only people that really get to buy and sell are the newcomers. This is pretty typical in a share registration. It’s in there for a reason. It’s there to prevent fraud and all sorts of other investor protection reasons. In a typical IPO, most of the stock is restricted. It’s locked up until usually a six-month window. It’s different for every listing. And so if you invest in something, and the company goes public using an IPO, usually you’re not allowed to sell until after the IPO lockup expires. And so you’re taking six months of additional public market risk. Now for a lot of EquityZen’s clients, it’s irrelevant because they’re long-term holders. And I think the way a lot of them look at it is, well, this is going to be in my portfolio for 10 years. What’s the difference whether it’s nine and a half years or 10 years or 10 and a half years? And so from that standpoint, there’s a lot of a buy-and-hold perspective. There are some folks who have more of a ‘buy today and sell in two years’ mindset. And they might care more about direct listing versus IPO. It’s not something you can influence, but if the company chooses a direct listing, then the shareholders typically can sell right after the lockup window, which is actually very short or non-existent. And so the next day, or the same day, you can actually start to sell. That is a key difference between an IPO versus a direct listing. And again, depending on the product that you invested in with EquityZen, you might actually have the ability to get liquidity separately from whether the company goes public. We’ve seen a lot of that over the last few years. Candidly, I think we’ll continue to see a lot more of that over the next couple of years as well until the IPO window fully opens and the business cycle hits that stride.
Nataraj: You mentioned the IPO market being frozen for the last couple of years, and 2019 to ’21 was when everything was hyped up. I think that was also the peak for secondary market sales if I remember. How do you see the next couple of years? That’s when I did my first EquityZen deal. It didn’t work out that well.
Atish: Yeah, it was just peak venture in every way. There you go. Then you should do another one now while the market’s come down quite a bit to dollar-cost average.
Nataraj: Yeah, I was keenly looking at the platform over the last year. But what is the outlook for the next couple of years looking like? Are the animal spirits coming back? It feels like it, that we can expect some IPOs to come back. What are your thoughts?
Atish: I absolutely believe there’s going to be more IPO activity. I think there’s actually going to be a lot more M&A activity, which is fine. Company liquidity is liquidity. This is the thing that, when you just read TechCrunch, it’s easy to forget that at the end of the day, an IPO, whether it’s M&A or IPO, anything worth buying should have a long-lasting impact. And so whether it’s a financing round, whether it’s an IPO event, whether it’s an M&A, it’s just one more milestone in the journey. It’s like you graduate high school, you graduate college, you rent your first apartment, maybe get married, maybe have a kid, maybe buy a house. It’s just one more event. I think when you actually look at it from a zoomed-out perspective, what I think is going to happen is there’s going to be a lot more liquidity that’s been built up, and the pressure valve will be released. A lot of this pressure comes not only from VC funds that have been able to make money with continuation funds but private equity sponsors. You have traditional hedge funds and private equity sponsors that put a lot of money in over the last six or seven years in the zero-interest-rate environment. There’s a lot of pressure for them and they actually control the businesses so they can maneuver the businesses to either sell or get sold to a corporate or to another sponsor. So I think that activity is going to help a lot. Anytime there’s that kind of activity, even without the cost of capital coming down, even without interest rates coming down, you’re going to see external prints. As soon as you see external prints, secondary transaction activity goes up. Because again, like I said, whether it’s Sequoia, which is the example I used earlier, or Francisco Partners, like a sophisticated investor that’s conducting diligence and setting a price, boom, now you have a benchmark off of which to go. And so whenever that activity goes up, secondary transaction volume will go up. And I think further what’s likely to happen is because there is, whether it’s in the next 12 months or certainly by 18 or 24 months, interest rates are expected to come down a little bit further. As soon as the cost of capital comes down, venture activity can really start to take off and private equity investment can start to take off. So not only are you going to have M&A, you’re also going to have IPOs and you’re also going to have financings and no matter what type of deal event takes place, it’s generally a positive sign for venture secondary transactions. And so from EquityZen’s standpoint, we’re really excited. We’re not really trying to figure out whether it’s this month or last month, or this quarter or last quarter. From a zoomed-out perspective, we think we’re kind of finding the bottom and we can’t wait for the growth that’s ahead of us. And at EquityZen in particular, we’ve actually been unique in our peer group; we’ve raised almost no outside capital. The last time we raised capital was eight, almost nine years ago. And so from that standpoint, the last few years that have been a little more lean, that’s what we were built for. And so we’re actually really excited and ready to go and not feeling beaten down about where the next few years are going to be. Unlike some of our peers that have raised a ton of money and are trying to figure out what they are going to do because venture activity is not yet at those crazy levels. And so from our standpoint, we’re just really pumped about where the market opportunities are going to be for the next really two and a half, three years at a minimum.
Nataraj: I think the reality of this industry, whether it’s early-stage or secondary-stage, is that you have to build long-term trust. And I think AngelList has done that in the early-stage space. When I looked at the secondary transaction, I saw a bunch of companies, but I can’t remember any other name other than EquityZen. I think that’s sort of a testament to the trust that you’ve built in the ecosystem.
Atish: I really appreciate you saying that. I think you and my mom are the two people that have told me that before, so I really appreciate that.
Nataraj: I think that’s a good note to end the conversation on. I know I want to be respectful of your time. Atish, thanks for coming on the show.
Atish: Hey, this was a fantastic conversation. Thanks for shedding a light on an area that obviously I’m really pumped about. And I think everyone who’s an investor should at least evaluate. So thanks again.
Atish Davda’s insights provide a clear roadmap for understanding the secondary market’s crucial role in the modern startup ecosystem. This conversation is a must-listen for anyone interested in pre-IPO investing, startup equity, or the future of private market liquidity.
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