Guides • 16 June 2020
Realise your investment of time and money by reaching more potential buyers of your private company shares.
The last decade saw the longest bull run in stock market history, but despite that, many of us know that the real growth opportunities were found in the private markets. Those of us who have been lucky enough to be employees or investors in startups have seen an increase in value from our investment of time or money—but we face limited liquidity options when we try to realise the value of our investments.
Fundnel addresses this liquidity issue by connecting sellers of secondaries to our network of 13,000 institutional and accredited investors, and have helped transact shares of high-growth companies like Grab and SpaceX.
Read on to find out how we can help you monetise your shares in private companies, and why you should always choose a licensed platform like Fundnel to help you navigate the complicated secondaries sale process.
1. Selling secondary shares is complicated
Unlike for shares of public companies, or family-owned businesses, selling shares in a venture-backed company is complicated and tedious. The process often involves a lot of middlemen who would work with other intermediaries to find a buyer for your shares. You may go through a long sales process only to find that the buyer is not real, or the buyer has chosen to buy shares from someone else who has priced it more competitively.
And sometimes, you run into a situation where you think you have found a buyer, but your bank refuses to accept the funds for the transaction. Why? Financial institutions are subject to anti-money laundering and countering the financing of terrorism regulations, which amongst other obligations, requires them to ascertain the source of funds. If due diligence has not been done, you may end up unknowingly in breach of anti-money laundering laws or meet a roadblock. This is why you should always conduct secondaries transactions through an approved capital markets licensee like Fundnel.
2. Getting you the best price based on market conditions
Other questions sellers commonly face are how do you know what the current market price is, or how do you know you are maximising the value of your shares?
When you sell through Fundnel, we can guide you through the commonly used benchmarks and market practices of pricing the shares of the company you hold, as well as give you an important indication of where the market is trending towards. Unlike intermediaries — that make money by earning a spread between the buying and selling price and are therefore incentivised to encourage you to sell as low as you can — we take a flat, pre-agreed fee on the final transaction price, which enables us to focus on helping you get the best price possible.
3. Settling the paperwork for you
The paperwork for selling your shares typically goes beyond just signing a sale and purchase agreement between you and the buyer. It is a multi-stage process to navigate for a secondary transaction to be successful.
The immediate step is to ensure that the transaction is legal. Most of the time, shares in venture-backed companies cannot be sold without the permission of the company and/or other investors. Getting approval is more than just an administrative task, as some companies or investors may have specific requirements or limitations on who they allow to purchase shares of the company. Convincing the investors and the company to give you the necessary permissions is not always straightforward.
Once you have obtained the permissions needed, due diligence has to be conducted on the buyer’s funds to ensure that the funds used to purchase your shares are obtained legally. Only licensed capital market entities like Fundnel are able to reliably perform this type of due diligence on buyers.
Finally, before you sign the sale and purchase agreement, you will need to make sure that the structure of the agreement is valid. You may also want to take into consideration potential tax implications of the sale. Fundnel works with a global network of legal and tax professionals and can help connect you to the relevant lawyers and tax advisors relevant to your personal situation.
Helping you find new opportunities
With the transaction completed, and the funds safely transferred into your bank account, what’s next? You might have liquidated your shares to fund your child’s college education or the downpayment for a dream home — if so, congratulations!
But if you are looking for new investment opportunities, here’s where Fundnel can help again. Simply log in to your account at Fundnel.com and look at your customised deal feed for the next big Google or Amazon to invest in.
Frequently Asked Questions
What are the profiles of companies and geographies that Fundnel would work with?
Fundnel’s network of investors look to us to curate quality deals on our platform and provide access to investing in companies globally. There is no limit to the geography, industry or maturity of companies that we feature, but we do carry out required due diligence on all companies before listing them on our platform.
What types of equity do you work with?
Our sellers come from a diverse range of backgrounds. Some are employees and incubators with typically common shares acquired through a shares grant, or through exercising their vested options; while others are institutions with preferred shares purchased in an equity financing round.
We also understand that different private companies have different requirements for such transactions. We have worked with sellers to optimise their sales by creating SPVs and other structures.
Is there a minimum size?
We aim to make investments accessible for all, and have completed secondary transactions from USD20,000 to upwards of USD10m.
How do I price my shares?
We are plugged into an international marketplace of buyers and sellers of secondaries, where we access popular secondaries (mainly unicorns) at their prevailing market prices. Prices are benchmarked by the current valuation of the company, as determined by their last primary fundraising round. For up-and-comers (which we like to call nexticorns), the convention is to introduce a 20-25% discount to the valuation of the company to increase your chances of selling your shares. There will be negotiations before you and the buyer agree on the final price.
What fees do you charge?
We typically charge a pre-agreed percentage fee upon a successful transaction. The actual fee will be discussed before the sale process commences.
What do I need to know about legal and compliance?
Fundnel is licensed by the Monetary Authority of Singapore (MAS) and all transactions are conducted to the standards upheld by the regulators. As such, all buyers and sellers are required to have their identity and holdings verified.
Template documents which cover the entire sale process may be provided to you upon request. However, please note that Fundnel does not provide legal counsel to shareholders or investors – all parties are responsible for making sure they understand the benefits and risks of this asset class and these transactions.
Have more questions about selling your secondaries? Reach out to us at email@example.com.
To submit an application to sell your private company shares, click here.