The term ‘unicorn’ has become ubiquitous, but what does it really mean? In the world of investing, a unicorn is a startup company with a valuation of over $1 billion. These companies are often referred to as “tech unicorns” due to the fact that many of them are tech-focused startups. But can you actually buy shares in these high-value companies? Let’s explore this further.
Can I Buy Shares in Unicorns?
The short answer is no (not normally) — at least not directly. This is because most unicorns are privately owned companies that don’t publicly trade their stocks on the market. As a result, investors typically need to wait until these companies go public before they can begin investing in them. However, rarely, some investors are able to purchase shares indirectly through venture capital firms or private equity funds that specialise in investing in high-growth startups like unicorns.
But there is sometimes a ‘Secondary Market’ in the shares…
You may have heard of the secondary market in private companies, but what exactly is it? The secondary market is a way by which investors can buy and sell shares of privately held companies. This market has been around for decades, but it has only recently gained mainstream attention. Let’s take a closer look at how the secondary market works and why it might be right for you.
How the Secondary Market Works
The secondary market in private companies is very different from the stock market, there are a few key differences:
- The shares are not listed on a public exchange.
- The shares are not always easy to trade and, there is no guarantee of liquidity, which means that you may not be able to find a buyer for your shares when you want to sell them.
- There is often no price and buyers have to do ‘price discovery’ to find out where buyers are willing to buy and where sellers are willing to sell. This is then agreed and the shares can change ownership.
Despite these challenges, the secondary market can be a great way for investors to get involved in high-growth companies that they might not otherwise have access to. For example, if you’re interested in investing in SpaceX, there may be buyers who bought in the very early Angel rounds who are now sitting on huge gains and may be willing to sell a portion of their investment and or be open to an offer for part of their stake.
Other technical challenges
Sometimes these stakes are transferred into Special Purpose Vehicles, or SPVs. These SPVs then own the shares in the unicorn company. When new investors want to buy those shares they actually buy the stake in the SPV to get the beneficial interest in the shares. The reason for this is to make the shares easier to transfer from one person to another without requiring approval from the unicorn company itself.
Why Invest in the Secondary Market?
So why would you want to invest in the secondary market? There are a few reasons:
- You can get involved with companies that are not yet publicly traded. This gives you the opportunity to get in on the ground floor and potentially see a higher return on your investment than you would if you waited until the company went public.
- You can gain exposure to companies that are outside of your usual investment strategy, such as SpaceX.
- Investing in the secondary market can help diversify your portfolio and reduce your overall risk. By investing in a variety of different companies across different industries, you’ll be better positioned to weather any economic downturns.
The secondary market can be a great way for investors to get involved with high-growth companies that they might not otherwise have access to. However, it’s important to understand how the market works and what the risks are before getting started. If you’re looking for potential investments, make sure to do your research and consult with a financial advisor before making any decisions.
For more information about AssetTribe and the secondary market investments available on our platform, go to www.assettribe.io to register and find out more.