Why has the secondary market buzzed for some private fintech companies while others have been left behind?
Julia Hornstein at The Information had an excellent piece last week diving into this.
One of the biggest predictors of whether a private company has an active secondary market is the date when the company raised its last funding round.
Consistently, we see significantly more buy/sell interest and completed secondary market transactions for companies that raised their most recent round after June 2022 versus before. I estimate June 2022 as the rough period where primary rounds stopped including ZIRP-era terms.
What do Stripe and Ramp have in common?
They're private fintech companies that raised widely publicized down rounds in the post-2021 exuberance fundraising environment.
Since their down rounds, each company has benefited from consistent investor interest in the secondary market, and both companies' estimated market clearing prices are greater than their last round prices.
Secondary market investors are often on the outside looking in at private companies. A new priced round led by a sophisticated investor is often the best tool to anchor price expectations for investors who don't receive regular financial updates from companies.
Of course, primary round activity isn't the only factor to consider.
Some private companies just flat out don't allow secondary market trading. Investors who are dying to get in can use an SPV or forward to get access (I posted about this yesterday), but if investor demand is not extreme, often investors lose interest & focus on other companies where stock can transfer more cleanly.
What's your take? Have you found other reasons private companies in the same industry can have completely divergent secondary market activity?
DISCLAIMER:
This is for informational purposes only and does not constitute an offer to buy or sell securities. All investments carry risk, and by investing in securities of private companies you may lose some or all of your investment. Consult with your financial advisor or an investment professional before making any investment decisions.
