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Private Company Secondary Markets            October 2011
Innovators Fund                                             Builders Fund                  Long/Short Equity              ...
Characteristics of a Secondary InvestorInvestors not operatorsPassive approach – no board seatsTypically more analytical –...
Secondary Investors are Not Venture CapitalistsWe solve liquidity problems for shareholders.           VCs buy shares in e...
Time to Exit has Increased                                                        Median Age at IPO       12       10     ...
Why Companies Mature Before an IPO                                   IPO performance from 1980-2010       Sales # of IPOs ...
The IPO Gap is Widening    Private company secondary funds are the new    small cap funds                                 ...
Secondary Investors Relieve the Pressure Cooker• Employee’s cash constraints                           • VC fund life• Inv...
My Market Predictions           • IPO Gap widens          • More mature companies enter the public markets          • SEC ...
My Fund Predictions           • Venture capital & angels get their 5 year             investment cycle back          • Hed...
Marketplaces have Been Established          SecondMarket                                  SharesPost          • Largest an...
Sample of Companies TradedCopyright 2011 HighStep Capital. All rights reserved.
Evolution of the Markets•Trading Facebook is like the Wild West•Crowdsourcing about to go on steroids•Companies will get o...
How To Buy Facebook SharesCopyright 2011 HighStep Capital. All rights reserved.
How To Buy Facebook Shares• Step 1: Buyer decides to buy Facebook shares• Step 2: buyer hires B/D as a buyer agent• Step 3...
How To Buy Facebook Shares• Buyer: Non-binding Letter of Intent: shares, price,  buyer• Seller: returns an Expression of S...
Phase 1 = Wild West      B/D Economics: $250m / $32 = 7.8m shares * (4% com * $32) = $10mCopyright 2011 HighStep Capital. ...
Crowdsourcing – Kickstarter is coolCopyright 2011 HighStep Capital. All rights reserved.
Pabst Blue Ribbon - Crowdsourcing on Steroids                                                        Goal: raise $300m to ...
Company Liquidity Programs are the Solution• A shareholder selling plan initiated by the company  with board approval• Buy...
CLP Example       Airbnb, Investor Chamath Palihapitiya Settle       Differences; Employees Will Get Liquidity         All...
Jason Jonesjjones@highstepcap.com      914.315-9751     New York | San Francisco
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Private company secondary markets october 2011

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Transcript of "Private company secondary markets october 2011"

  1. 1. Private Company Secondary Markets October 2011
  2. 2. Innovators Fund Builders Fund Long/Short Equity Private Markets Liquidity• Public markets fund • Private market fund• Global Internet companies • Global Internet companies• Market neutral - up to 200% gross • Solve cap table and liquidity needs• Low beta and low volatility • Access to the top venture backed companiesCopyright 2011 HighStep Capital. All rights reserved.
  3. 3. Characteristics of a Secondary InvestorInvestors not operatorsPassive approach – no board seatsTypically more analytical – love data Mid-cycle investorsPatient investorsEquivalent to investing in a small cap companyCopyright 2011 HighStep Capital. All rights reserved.
  4. 4. Secondary Investors are Not Venture CapitalistsWe solve liquidity problems for shareholders. VCs buy shares in emerging business. We buy shares from shareholders…Dodd-Frank: 20% non-qualifying ruleCopyright 2011 HighStep Capital. All rights reserved.
  5. 5. Time to Exit has Increased Median Age at IPO 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 NVCA, Jan 2011Copyright 2011 HighStep Capital. All rights reserved.
  6. 6. Why Companies Mature Before an IPO IPO performance from 1980-2010 Sales # of IPOs Avg 1st Day Return Avg 3yr Return <$50m 3,897 23.60% 5.00% $50m+ 3,457 12.00% 39.10% IPO research from Prof. Jay Ritter, University of Florida – as of 6/1/11 http://bear.cba.ufl.edu/ritterCopyright 2011 HighStep Capital. All rights reserved.
  7. 7. The IPO Gap is Widening Private company secondary funds are the new small cap funds Private Secondary Environment in 1990s Today’s Environment Exchanges IPO Public VC Markets Public VC IPO Gap Markets1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Copyright 2011 HighStep Capital. All rights reserved.
  8. 8. Secondary Investors Relieve the Pressure Cooker• Employee’s cash constraints • VC fund life• Investor Fatigue • 500 shareholder limitCopyright 2011 HighStep Capital. All rights reserved.
  9. 9. My Market Predictions • IPO Gap widens • More mature companies enter the public markets • SEC regulation strengthens the market • Many companies adopt liquidity programs • Private secondary offerings emerge as a third exit alternative behind IPO and M&ACopyright 2011 HighStep Capital. All rights reserved.
  10. 10. My Fund Predictions • Venture capital & angels get their 5 year investment cycle back • Hedge funds & Mutual funds move in • Private Equity/LBO firms offer their shares • Private Market Liquidity Funds emerge as a new asset classCopyright 2011 HighStep Capital. All rights reserved.
  11. 11. Marketplaces have Been Established SecondMarket SharesPost • Largest and best known • Online bulletin board • Broker/Dealer • Widest range of companies • Min transaction: $25k • Over $800mm transacted GATE Technologies Xpert Financial • Broker/Dealer • Broker/Dealer • Electronic trading platform • Electronic trading • Company Pre-Approval platform • Backed by Tim DraperCopyright 2011 HighStep Capital. All rights reserved.
  12. 12. Sample of Companies TradedCopyright 2011 HighStep Capital. All rights reserved.
  13. 13. Evolution of the Markets•Trading Facebook is like the Wild West•Crowdsourcing about to go on steroids•Companies will get organizedCopyright 2011 HighStep Capital. All rights reserved.
  14. 14. How To Buy Facebook SharesCopyright 2011 HighStep Capital. All rights reserved.
  15. 15. How To Buy Facebook Shares• Step 1: Buyer decides to buy Facebook shares• Step 2: buyer hires B/D as a buyer agent• Step 3: buyer agent puts word into B/D cloud• Step 4: Engineer hires a private wealth manager• Step 5: PWM hires lawyer or B/D as seller agent• Step 6: seller agent puts word into B/D cloudCopyright 2011 HighStep Capital. All rights reserved.
  16. 16. How To Buy Facebook Shares• Buyer: Non-binding Letter of Intent: shares, price, buyer• Seller: returns an Expression of Sale: price is binding• Buyer: produces a proof of funds• Seller: produces a proof of shares• Seller’s attorney: arranges escrow & produces a stock transfer agreement• Signatures: both parties sign & date• Seller’s attorney: delivers STA to Facebook for RoFR• Closure: RoFR waived, shares & $$ are exchangedCopyright 2011 HighStep Capital. All rights reserved.
  17. 17. Phase 1 = Wild West B/D Economics: $250m / $32 = 7.8m shares * (4% com * $32) = $10mCopyright 2011 HighStep Capital. All rights reserved.
  18. 18. Crowdsourcing – Kickstarter is coolCopyright 2011 HighStep Capital. All rights reserved.
  19. 19. Pabst Blue Ribbon - Crowdsourcing on Steroids Goal: raise $300m to buy Pabst Blue Ribbon $5: Bottle Membership $25: Six Pack Membership $100: Case Membership $250k: The BrewMeisterCopyright 2011 HighStep Capital. All rights reserved.
  20. 20. Company Liquidity Programs are the Solution• A shareholder selling plan initiated by the company with board approval• Buyers are pre-approved• Minimum investment sizes are established• Employee sales policies are established• Regular sales windows are established• Select financials are disclosed with pre-approved buyers under NDA• Organized access to management & ongoing reportingCopyright 2011 HighStep Capital. All rights reserved.
  21. 21. CLP Example Airbnb, Investor Chamath Palihapitiya Settle Differences; Employees Will Get Liquidity AllThingsD – October 2, 2011Copyright 2011 HighStep Capital. All rights reserved.
  22. 22. Jason Jonesjjones@highstepcap.com 914.315-9751 New York | San Francisco
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