What is the meaning of a secondary market?
The private secondary market is the one in which stakeholders of private, venture-backed companies (employees, ex-employees and early investors) wish to transfer their shares to an investor in exchange for liquidity. The investor on the other side exchanges cash in return of shares of that private company. The sales proceeds go to the selling shareholder, not to the company.
A primary issue of shares is the source of equity for a given company. Primary issue happens when a company issues a new class of shares and grants those to employees (in the form of stock options) or sells them to investors in an event of fund raise. The employees and investors who own primary shares may choose to sell them in the secondary market, through Torre Capital’s marketplace.
How can you diversify your portfolio and expect higher returns by investing in the secondaries market?
- Given the expense of going public (which can be significant in terms of time and resources) and the public markets’ short-termism (which can cause public companies to focus on quarterly earnings and not on long term growth).
- Tech-Based companies have fewer reasons to go public than they did a decade ago, because of which the venture-backed technology companies are increasingly reaching $1B and even $10B valuations before they go public, which leaves less potential for public market investors. In the year 1999, US technology companies went public typically after 4 years but today, the average technology company IPO comes after a minimum of 10 years.
- As the companies are taking longer to go public, their early investors and employees have to wait substantially longer for liquidity than they would have in the past.
There are many reasons why early shareholders of now valuable private companies might want to tap into liquidity through Torre Capital. For example, an early stage venture capital investor might want to return capital to limited partners ahead of the launching of a new fund. An early employee of a now late-stage company might want to sell shares to finance transactions like buying a house.
Torre Capital acts as an intermediary between the shareholders who need liquidity, and the investors who want investment exposure to proven technology companies before they ultimately go public or get acquired. If the company goes public, investors receive shares post the lock-in period (which restricts private company shareholders from selling their publicly traded shares, ranging between 6 months to a year). If the company is bought for cash, the investors are compensated for the same as well.
More than $50 Billion in value is estimated to be locked up in private, pre-IPO companies, and the secondary market is unlocking that value for investors who were previously unable to participate due to high minimums and restricted entry.
Who influences the pricing of the secondary market?
The investors who participate in the fund raise have an influence on primary market prices; secondary transactions are usually priced in relation to the most recent funding. The price is generally influenced by factors of supply and demand. If a private company has a high demand, its shares might trade at a premium in the secondary markets (in other words, the shares would be priced higher than the share price from the most recent funding). If the sellers of a particular security are more than its buyers, the shares might trade at a discount (lower than the share price from the most recent funding).
Apart from the influences of demand and supply, following are the other factors that can affect the price per share of private market securities:
a. Share Class: Two of the primary types of shares are preferred stock and common stock.
- Preferred stock is a type of equity security that has certain rights over common stockholders. These rights may include, but are not limited to, liquidation preferences dividends, anti-dilution clauses, and managerial voting power.
- Common stock is a type of equity security that is most frequently issued to founders, management, and employees. In the event of liquidation, preferred shares are generally given priority over common shares.
b. Discount for Lack of Marketability: A valuation discount exists between stock that is liquid and traded publicly, and stock that is illiquid and not publicly traded. Because Torre Capital’s offerings are relatively illiquid, it’s common for them to be priced at a discount to the most recent round of funding.
Why invest with Torre?
Torre Capital is a VC funded Singapore based Financial Technology company and a Registered Fund Manager in Singapore. We are creating a fully digital Wealthtech to connect family offices and HNI investors with global opportunities, including alternative assets like Private Equity, Venture Capital, Real Estate Funds, and Hedge Funds. Our investment vehicles offer exposure to high quality global growth startups, private debt opportunities, and other thematic funds in the pre-IPO space. They are available to registered investors around the globe.
Our current customer set includes 500+ family offices and High net worth investors (CXOs, first and second-generation entrepreneurs). With the team composed of ex-Mckinsey consultants, Asset management veterans, and Digital experts.
Exclusive features offered by Torre:
- Pre-vetted/ Curated funds
- Low and transparent cost
- End-to-end digital
Who are the shareholders?
Shareholders include all angel investors, employees of the company, founders, or anyone who currently has equity in an eligible private company in the form of common shares, preference shares, stock options or restricted stock units. The following services are provided by Torre Capital to private company shareholders:
- Opportunity to sell shares in the Torre Marketplace
- Avail equity funding for your private company ESOPs
How does the Shareholder’s journey work?
a. For selling shareholders:
- Register on the platform by providing a few basic details about your equity stake.
- Explore the Torre Capital marketplace to submit your request. Our private market specialist connects with you to perform due diligence checks.
- We offer the shares to our investor community and gather investment commitments. We also work with the company directly for a completely secure transaction.
- Transfer documents executed and you receive the sale proceeds. Torre Capital charges a nominal transaction fee.
b. For shareholders who seek to avail equity funding:
- Register your interest and submit your financing request. Find out how much funding you can avail.
- Our credit experts get in touch with you to perform due diligence checks, understand your tax liability and underwrite the funding.
- Depending on your company’s terms and agreement, the forward equity contract is signed and you receive your funds.
- Share a portion of profits with us post liquidation event. In case of no liquidation event, you don’t have to pay us back.
Advantages of selling at Torre’s Marketplace:
- Immediate Partial Liquidity.
- Maximum benefit to shareholder: You only pay us in case of a liquidity event.
- Get to keep your upside: If your company never meets a liquidation event, you still have received funding for part of your shareholding.
- Minimized Risk: Upfront part funding and safety of investment till liquidation.
- Multiple asset class: If you own multiple classes of preferred stock, common stock, ESOPs, RSUs, you can sell them easily on the Torre Capital marketplace.
Who are the investors?
Currently only accredited investors as defined here are able to make investments through our platform (Investments are not open to US Citizens). With Torre’s platform, the opportunities are endless. You can choose to allocate capital across four different asset classes – equity, ESOPs, structured products, and funds.
How does the investor journey work?
- Register your interest on our platform. We leverage our network to provide company specific offerings to all employees.
- Reserve your interest. All IPAs issued post approval.
- Shareholders agree to terms, sign a Forward share ownership contract.
- Funds transferred to shareholders’ account. Company leadership informed of agreement with Torre Capital. Receive frequent updates.
- Upon liquidation, receive principal and profits redemption requests raised to shareholders.
Advantages of investing at Torre’s Marketplace:
- Exclusive access to high-growth startups: 20% – 30% discounted equity ownership in series D and above global pre-IPO unicorn/soonicorn shares leading to lower investments than secondaries.
- No upfront cost: Zero transaction cost versus 10% charged by secondaries.
- Attractive Returns: 3x – 5x better returns than direct secondary transactions.
- Vigilant and protective measures: 3x collateral protection for initial investment till 80% downfall in stock value.
- Faster cash-inflows: 3x – 4x faster return of capital than top VCs.
Torre’s Pre-IPO Fund
If you believe in the power of the Torre Capital platform for sourcing strong deal flow and you believe in the pre-IPO asset class, but you are not comfortable or otherwise do not want to select single names for investment, you should consider a managed fund investment. The Fund Series investment committee will select all investments, which are a curated subset of what comes across the Torre Capital platform.
If you would like your investment to give you diversified exposure to the pre-IPO asset class, but can’t commit to multiple $100,000 investments, a managed fund is a good option. You will get investment exposure to multiple pre-IPO companies that are carefully selected by the fund series investment committee.