Introducing Deal Rooms
Portfolio funds, Syndicates, Rolling funds and Investment communities
At GetEquity, our mission is to build out an ecosystem that creates liquidity in an illiquid market through the sale of secondaries. To further this, we came up with the concept of Deal Rooms.
A major use case we have seen across multiple VCs, syndicates and even angel investors has been tied dow funds. The average age of startups to exit in the US is about 4 to 11 years.
In Africa, this is even longer. This situation has led to conundrums around startup investing
I like company X, but i feel they will take about 10 years to exit. company Y might not be as appealing, but they have an exit path in 5 years
We see this around our ecosystem with the increase in fintech startup investment, and the perceived decline in investment across other sectors.
Deal Rooms change the way these currently operate. A deal room is a closed group within the GetEquity platform that provides the functionality of GetEquity to members of that room within a closed system. Members can trade, transfer equity within themselves; meanwhile the deal room admin manages and monitors transactions within the platform
Let’s Give a scenario of a company “LetPay”. LetPay has raised a seed round from a couple of investors including a syndicate called “Funder”.
LetPay has now been in operations for 2 years and have been showing steady growth in revenue.
An a member of the syndicate “Funder” can decide to sell his equity stake to other members of that syndicate for reasons known to him. E.g there could be a new company, (or new companies) said member thinks will have as much growth as LetPay started with 2 years ago
Member (Jude) initially invested $5000 in LetPay at their seed round. based off their growth and revenue, Jude thinks LetPay should be worth at least 4x what it was when he invested. He decides to sell his stake on the Funder deal room for $20,000
Other members of this syndicate who feel there is quite a lot of value to still be made in “LetPay”, and seeing as it is a much more mature company, would be a less risky investment could decide to buy these shares.
Jude now has a liquidity of $20,000 to repeat his investment process 2 years ago, but this time with 4 companies.
When we look at the multiplier effect of this, we see that this will revolutionise the startup ecosystem, release more liquidity to enable even more companies get funded.
The major use case for syndicates and portfolio funds, is the ease of management of users, transfer of ownership and equity gives rise to a “Portfolio management platform”.
We have a similar use case for companies with the rise of ESOPs. An ESOP is an “Employee Stock Option Plan”. This is used by companies to give a bit of ownership to valuable employees.
With the rise in decentralised and remote work force, local talent are now able to work for companies all over the world while living in Nigeria. Our startup ecosystem is still not flush with liquidity to afford the same rates as our European counterparts, stock options offer a way to prove value to your employees as a bargaining chip.
The major issue again with this is the lack of exits, $100,000 in equity is worth its worth only in paper until an exit is made.
This is where Deal Rooms for companies (also known as ESOP rooms) come in. Employees are able to get assigned this equity based on the company’s structure and agreement, and can now sell this back to the company (or other members of that room).
Startups can also have their investors in this room for a similar use case of buying back equity. This gives rise to a “Cap table management platform”
The Implications of these alone are outstanding, and work in line with our vision of expanding the venture capital and startup ecosystem.
Welcome aboard! We can’t wait to see the various ways you use this…
