EquityZen

EquityZen is a secondary marketplace for accredited investors, providing access to shares in leading private tech companies backed by top private market investors. The firm partners with shareholders in private companies to list shares – backed by company approval in all cases. These shareholders are most often current and former employees in companies, selling shares to cover costs, diversify their holdings, or pay for life events such as having a child or paying their mortgage.

‍

Listings on EquityZen differ from standard secondary offerings – which are available only in large blocks to large, institutional asset managers – by providing investment opportunities in the next generation of up-and-coming companies while cutting out institutional intermediaries. These offerings are normally limited in access because of the heavy legwork that goes into facilitating a transfer of shares, as many forms are needed to change legal ownership. For each transaction, the Firm helps mitigate this inconvenience by investing in funds (organized as LLCs). Their use of this approach means that investors technically don’t own shares directly, but rather hold a stake in a pooled fund run by EquityZen which owns the shares. This is a common practice which only serves to benefit investors by bolstering their access to high-quality deal flow. Other sites using this investment structure include LexShares, Rally Rd, and Wunder Capital. In the case of the site going out of business, positions can be easily transferred to a third-party custodian (what the site labels a “backup manager” in its FAQs)

‍

The Firm has leveraged this differentiated model with time, building out a well-regarded platform supplemented by quality news and research. Opportunities on the platform have a minimum investment size of $20,000 and are typically priced based on a company’s most recent round of financing; however, EquityZen also considers investor demand, precedent secondary transactions, and additional information provided by the seller in determining a share price.

‍

Pros

• All listings have both company and shareholder approval, with most shareholders being employees (as opposed to institutions)
• Broad selection of top companies in the private markets
• Limited legal work for investors given the nature of EquityZen’s pooled investment structure, as compared to buying shares directly from an employee
• The site accepts most self-directed IRAs, which can help one include private market investments as part of their savings plan.
• In the case of the site going out of business, positions can be easily transferred to a third-party custodian (what the site labels a “backup manager” in its FAQs).

Cons

• Opportunities come with a heavy fee that decreases with the size of an investment. Investments up to $500,000 are charged a 5% fee; investments of $500,000 to $1 million are charged a 4% fee; and investments of $1 million and up are charged 3%. 
• Fund model prevents direct ownership of shares, so there is less incentive to use the site for larger positions. The downside risk for investments is partly, but not entirely, dual-pronged: there is both company and platform risk tied to positions but the capability of transferring positions to a backup manager partially mitigates platform risk.

‍