EquityZen Users Community/Investor Experience
EquityZen Overview in the Mirror of the Secondary Market Experience
While making a startup for preliminary research on EquityZen deals all our team tried to help investors decide in advance which companies are more interesting for them to research deeply and invest in, and which ones may be skipped.
So, this is a venture capital assistance scheme to improve your EquityZen analytics for certain companies and take a deeper look at things like Ripple, Instacart, or even SpaceX.
We’ve made a detailed EquityZen overview and consider it one of the most convenient platforms for Pre-IPO investments. In the text below, you will find out why we love EquityZen so much :)
Our choice in favor of Pre-IPO
We determined that investments in Pre-IPO are the most reliable in terms of profit. Late-stage companies are more likely to go public soon, giving investors a chance to earn quickly. So, investors face a minimum of risks here since Pre-IPO companies usually have already proven their market viability and have an investment history, traction, and some exit plans.
At the same time, our capital is not yet large enough to directly fund late equity rounds, along with the giants of the venture capital industry. The secondary market is reasonably accessible to us, primarily because we could determine the volume of our investments.
The secondary Pre-IPO market provides an opportunity to buy shares in private companies from equity investors or buy out employees’ options before the company goes public.
Investment instruments in the secondary market
While studying the secondary market, we’ve found three working ways to engage in secondary deals.
The first way is to buy shares directly from the holder, bypassing all sorts of intermediaries. This option is relatively safe and understandable, but there is one sensitive point. To find an investor willing to sell their shares, you need to have a good network of acquaintances and sufficient authority and trust in the venture.
The second way is to join investment firms or syndicates, which combine the funds of several individual secondary investors to buy shares. There are different schemes of such investments, and there’s one common condition for all: the number of shares of each syndicate member corresponds to their contribution to the total capital. The problem with insiders is completely solved here, and there is more room for maneuver with the size of investments.
The third way is to invest through secondary broker platforms, which act as marketplaces for secondary deals. As well as syndicates, they undertake the search for allocations and legal processing of deals, charging a certain percentage for this.
Why we chose secondary brokers
Of the three above methods of secondary investing, we settled on brokers. We did not consider insider investment a viable option, but broker platforms and secondary syndicates had to be compared. The results showed a clear advantage for brokers.
Firstly, brokerage platforms have lower commissions, and it is more profitable to invest through them. Brokers take a single commission from 3 to 5% of the transaction amount. Secondary syndicates often work according to the “5% + 20%” model: 5% of the investment amount + 20% carry the profit amount.
Syndicates charge carry for:
— searching for deal offerings;
— preparation of investment memos and presentations;
— assistance in the registration of deals and legal documents.
In other words, “the carry” forms the salaries of the syndicate managers. Secondary broker platforms operate semi-automatic with standard processes and documents within the single approval procedure.
Secondly, as already mentioned, brokerage platforms attracted us by automating the investment processes. In our experience, syndicated deals take several months to complete, and each agreement is unique in its set of conditions. In this case, all responsibility for the documents (about 200 sheets of legal text) and money transactions lies with the investor.
For brokers, deals flowed in a steady stream, on average, 4–6 per week, and the conditions are always the same. So, it is enough to understand the principle once and fill in the necessary information about yourself, then everything happens according to a single scheme, in a semi-automatic mode.
You should read and understand the same 200 legal sheets only once. And this is your access to hundreds of deals on the platform.
We assume that everything is okay with the brokers’ documentation. Thousands of users who invest through them have read and approved these documents. If problems suddenly came to light, someone would write about them. We googled and found nothing like this.
So, there’s no reason to suspect a problem: Is EquityZen legit? Absolutely yes!
Thirdly, we cannot be sure about the minimum amount of investment. Will it suit us? Each syndicate has its minimum investment threshold. As for secondary brokers, we are delighted with the honourable conditions of the EquityZen platform. The minimum amount to participate in a deal is just $20k.
Fourth, we like the objectivity of the brokerage platforms. They provide information about deals and companies as is, not trying to prioritize or embellish them. All data is provided in a standard form for all offerings listed on the platform.
On the other hand, syndicates re-present new deals through investment memos (like classic venture capital firms do). These memos are prepared by the company’s specialists for each deal separately. So, there is often a deliberate exaggeration of some facts about the company and hushing up others, according to the author’s subjective opinion, as well as retouching risks.
Anyway, we extremely believe that any deal requires its special analysis.
Fifth, brokerage platforms allow us to be lazy. There are a huge number of live deals, much more than the average syndicate offers. Investors don’t need to search for or wait for a new offering for a long time. They go to the platform and choose from dozens of available offerings.
Finally, sixthly, investments through secondary brokers give additional guarantees to ordinary investors:
- the name, experience, and reputation of a broker with hundreds of thousands of clients is more reassuring than a syndicate/firm with a dozen deals, potentially ready to raise money and disappear without much risk for its owners;
- an intermediate link between the seller and the buyer of shares is added. It’s a broker that guarantees the deal complies with SEC standards, is verified by serious lawyers, and is not a fraud;
- interesting to note that most of the syndicate firms also buy shares through the brokers :)
Thus, our choice is clearly in favor of brokers.
However, we don’t reject syndicates at all. Syndicate deals sometimes are also precious and exciting:
- in terms of awareness of the situation and prices in the market;
- in terms of rarity and uniqueness of deal conditions;
- in terms of the community and insiders’ opinions;
- in terms of finding not secondary but equity investment opportunities.
Why we chose EquityZen
The most popular secondary brokers are EquityZen, ForgeGlobal, Micro Ventures for buying shares, and EqutyBee, Carta X for purchasing options.
Of course, there are other secondary brokers, and they are EquityZen competitors.
We chose to favor of EquityZen again based on a comparative analysis.
It just happened that we like to study and compare everything. We’ve learned how does EquityZen work and done a bit of research like “EquityZen vs. Sharespost” (as Sharespost is now merged with ForgeGlobal, we’ve also made a comparison “EquityZen vs. Sharespost vs. Forge”).
1. Clarity
EquityZen immediately stood out from other brokers with its transparency. You can easily find all the necessary information on investing in EquityZen using the platform on the website (FAQ page).
There is also a fast and friendly team of support managers for those who face any issues. By keeping in touch with our manager, we receive personal notifications about holidays on the platform, technical problems, ways to avoid a deal cancellation penalty, etc.
2. Minimum check
EquityZen’s minimum investment is the lowest among all popular secondary brokers.
The threshold is:
- $10k for the first deal,
- $20k from the 2nd till 5th deals,
- $10k again after the 5th deal.
For comparison, ForgeGlobal has a minimum investment of $100k.
3. Commission
EquityZen fees are the most profitable for investors:
5% on trades up to $500K,
4% on trades up to $1M,
3% on trades over $1M.
For most of them, this is quite atypical for secondary brokers as the commission size decreases on extensive checks. For example, on ForgeGlobal, a 5% commission is valid for all investments up to $5M.
In general, it seems that EquityZen tries to make offerings available to ALL platform investors, while it is usually more typical for brokers to target large million-dollar investors and search for offers on demand.
4. Listing Schedule
EquityZen platform has a clear listing schedule.
New offerings open every Tuesday and Thursday at 12:00pm EST.
This is super convenient because it reduces the risk of missing out on a profitable deal.
5. Flexibility
There are several types of deals to choose from on EquityZen. Every platform user can grab an investment scheme that suits him exactly.
For example, you invest through EquityZen into:
- standard deals (the most interesting for owners of small capitals),
- express deals (an option for an early exit before the liquidation event),
- multi-company deals (EquityZen managed funds),
- deals on-demand (so-called direct purchases),
- deals through a managed legal entity (LLC).
Optimal approach
EquityZen is considered to be the optimal investment platform at the moment. It gives a convenient and precise mechanism, various deals, and favorable conditions. Therefore, EquityZen is our base place to find offerings and invest.
At the same time, one should not deny the obvious: it is irrational to use only one platform. There is no “best of the best forever and ever.” Anyway, we use other sources of deals and offerings. Investment platforms diversification, as well as Portfolio diversification, is the only working method.
Nowadays, this is true significantly when the technology market is dropping, and there is a high risk of facing inflated share prices and generally low-quality deals.
Of course, good deals can be found outside the EquityZen, both on other brokerage platforms and with syndicators.
At least, secondary platforms diversification trains your eye and gives a good idea of the situation in the market.
As a maximum, you increase the chances to find the diamonds among the rocks.
So, maybe one of the following articles will be about the downside of EquityZen. Leave your EquityZen review below to be in!
If you are looking for the like-minded community to discuss EquityZen deals and venture topics, welcome to the private Discord server:
