Behind the Money

An IPO drought pushes investors to a murky marketplace

Jan 17, 2024

This podcast discusses the rise of venture secondary markets as IPOs and acquisitions slow down in Silicon Valley. It explores the challenges and differences of trading in these markets, the creation of Carter X to simplify share selling, a scandal involving startup Carter, and the lack of transparency in the trade and venture secondaries market.

18:28

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Quick takeaways

The slowdown in initial public offerings and acquisitions has created a demand for the venture secondary market, where investors and early employees can trade stakes in privately-held companies.

The venture secondary market lacks transparency and regulation, making it potentially prone to manipulation and fraud.

Deep dives

Importance of company stock in attracting employees

Silicon Valley startups have been using company stock as a major incentive for attracting new employees. Stock options are often seen as more valuable than salary since they have the potential to turn into significant wealth if the company succeeds. However, the recent slowdown in the venture capital market, with higher interest rates and reduced IPOs, has caused a liquidity problem for employees who hold stocks in privately held companies. This has led to a growing demand for alternative solutions such as the venture secondary market, where professional investors and employees can trade stakes in companies before they go public.

Introduction

2min

The Murky Space of Venture Secondary Markets

5min

Carter X: Bringing Transparency to Startup Stake Trading

3min

The Carter Scandal and the Challenges of the Venture Market

5min

The Opacity of the Trade and Venture Secondaries Market

4min

In Silicon Valley, the promise of a massive payday for a start-up’s early employees and investors has hinged on those companies eventually going public or being sold off. But with the slowdown in initial public offerings and acquisitions, a different marketplace is set to heat up this year. It is called the venture secondary market, and it’s where both investors and early employees can trade their stakes in privately-held companies. The FT’s venture capital correspondent George Hammond explains the potential pitfalls of this opaque marketplace and why investors will be rushing to it in 2024.

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For further reading:

Investors raise billions to buy discounted stakes in start-ups

Carta customers say platform tried to trade their shares without consent

Carta shuts trading platform after data privacy breach allegations

Staying private: the booming market for shares in the hottest start-ups

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On X, follow George Hammond (@GeorgeNHammond) and Michela Tindera (@mtindera07), or follow Michela on LinkedIn for updates about the show and more.

Read a transcript of this episode on FT.com

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