The new options of start-up exchanges

Investing

As the UK looks at radical proposals such as dual-class share structures to encourage start-ups to list their companies in London, the US and Silicon Valley have already been there, and are now going much further in helping entrepreneurs, employees and their VCs to monetise stakes.

Miles Kruppa in the Big Read looks at the development of the pre-IPO secondary markets where several new entrants, including San Francisco-based Carta’s private stock exchange CartaX, want to formalise the market and capture trading fees that have been spread between dozens of independent brokers to date.

Things have come a long way since these grey markets first came to prominence when employees traded their stakes and options in the lead-up to Facebook’s 2012 IPO.

Marc Andreessen of Andreessen Horowitz is a Carta board member and said in a blog post his VC firm would buy shares in companies on the exchange. “The third configuration — beyond the false binary of simply private or public — is here,” he wrote.

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Carta’s CEO Henry Ward wants his marketplace to compete with the Nasdaq exchange, providing a listing venue where companies could potentially stay private indefinitely. The exchange has automated price discovery and uses an auction model that Ward says will result in higher prices for sellers.

Meanwhile, JPMorgan has put its money behind Zanbato, a private share trading system that is taking a different approach from Carta, acting as a central matchmaker for more than 100 banks and brokers executing orders on behalf of clients.

Chart showing trading activity on private stock trading platform Zanbato

Zanbato focuses on trades between large, qualified buyers with more than $100m in assets, so it is perfect for VCs looking to cash out. Employees with stock options in long-term private companies find it more difficult, with more than half of employee stock options not taken up because workers lack the necessary funds, according to Lex.

But there are new solutions for them as well. Companies such as Secfi, Quid and EquityBee offer forward purchase deals to buy options and cover tax payments. These are not repaid until there is a liquidity event — such as an IPO — at which point the company takes a portion of the upside. Options for options holders sounds appropriate, and for the rest of us in Europe, there are new options now Robinhood is not coming here. This week’s #fintechFT examines how Trade Republic, Freetrade and Bux are looking to cover that gap in the market for low-cost trading platforms.

The Internet of (Five) Things

1. Budget boost for start-ups
More early-stage funding is in the works to help start-ups in Britain, with the chancellor Rishi Sunak set to launch a fund that will invest up to £375m of government money in fast-growing UK tech companies. Future Fund: Breakthrough is due to be announced in the Budget on Wednesday and will involve government money being matched by private sector venture capital.

2. Listing boost for London
Trustpilot has unveiled plans to list in London, handing the UK a significant tech initial public offering ahead of rival exchanges in the US and Europe, as the online reviews site looks to take advantage of booming demand from investors. The company, founded in 2007 and headquartered in Copenhagen, plans to raise $50m and is hoping for a market value of about £1bn, according to people close to the company. Lex asks whether Trustpilot has done enough to ease regulators’ concerns about fake reviews.

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3. Klarna raises war chest to buy now
Klarna has said it is on the hunt to make acquisitions as it raised a fresh $1bn of investment, valuing the Swedish fintech at $31bn, almost six times more than it was worth 18 months ago. Sebastian Siemiatkowski, Klarna’s chief executive, told the Financial Times that the “buy now, pay later” company spied the chance to capitalise on surging demand in the US.

4. Skydio drone maker funding soars
California-based Skydio has become the first US drone maker to be valued at more than $1bn. The new valuation comes from a $171m investment led by Andreessen Horowitz’s growth fund and is the first significant fundraising since Washington placed China’s DJI, the world leader in drones, on the Entity List prohibiting US companies from supplying it with components.

5. Biden warns Amazon on anti-union steps
Joe Biden has demanded that Amazon not intimidate nor threaten workers who are voting to join a union at an Alabama warehouse. “The choice to join a union is up to the workers — full stop,” the US president said in a video posted on Twitter on Sunday evening.

Tech week ahead

Tuesday: Hewlett Packard Enterprise reports earnings after the bell and also takes part in the Microsoft Ignite 2021 digital event. Samsung has an Unbox event to unveil new TVs.

Wednesday: Cloud data warehousing service Snowflake reports earnings, its second since going public.

Thursday: Chipmaker Broadcom reports earnings after the close.

Tech tools — Google’s Focus Time

Pilita Clark’s latest column looks at how much time we waste on emails and reviews a new book on freeing us from that bondage. Meetings can be just as much a waste of time, but Google has announced tools today for Workspace that should make it easier for people to juggle the different demands of the office and make better use of their time. The new features include Focus Time, which lets people minimise distractions by limiting notifications, and Time Insights where workers can assess how they’re spending their time against their own priorities.

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