But now, the third path to making money in Silicon Valley - selling large shares to other private equity investors - is gaining in popularity.
Right now, powerful investment companies are absorbing their holdings from some of the more-valued early-stage start-ups, which are known as 'private-market transactions.' Through such deals, startups Allowing employees and investors to cash out on some of the shares they hold without entering the open market, which has infused Silicon Valley with huge sums of money as technology companies cool their IPOs.
One of the most notable investment firms was Japanese corporate giant SoftBank Group Corp., which cleared an obstacle last week in its Uber Technologies Inc. technology investment from Softbank The fund seeks to buy off its shares from Uber's investors and employees through the deal; Uber latest round of financing valued the company at $ 68 billion, and if the deal completes, the $ 10 billion investment will hit a record History of technology industry record of such transactions.
According to people familiar with the situation, Softbank recently also promised to acquire a majority stake of investors and employees in the company's office space-sharing company WeWork Cos. For 1.3 billion dollars as part of SoftBank's $ 4.4 billion investment plan for WeWork. WeWork Of shareholders were told they could sell their shares for a valuation of $ 20 billion, the bid of SoftBank, and former employees of WeWork said they had already got the proceeds from the sale of shares in recent weeks.
Earlier this year, SoftBank also invested $ 2.5 billion in India's e-commerce giant Flipkart Online Services Pvt. Ltd. According to informed sources, Softbank promised to spend billions of dollars on investors to buy shares as part of the investment plan.
Informed sources said the trend also extends beyond Softbank's purchases of high value companies such as Airbnb Inc., Social Finance Inc., an online lender, and Slack Technologies Inc., an information software company.
Over the years there have been a variety of markets where secondary shares can be sold and the aim is usually to help employees and early investors get cash in advance of the IPO. Now the size and frequency of these deals have changed, And low financing costs under low interest rates driven by large-scale transactions began to emerge.
If this trend continues to widen, it may further hinder the IPO of many large technology companies and thus limit the ability of small investors to invest in these companies, after all, cash holdings are a major driver of early-stage investors and employees launching an IPO.However, Privately-held secondary market transactions are generally lower in price than the price at which a company issues shares directly.
Vincent Letteri, head of technology investment at Kohlberg Kravis Roberts & Co., a private equity firm, said that about half of the company's current investment-considered deals are in private-equity secondary markets, according to Letteri, suggesting an increase in the frequency of such deals, especially It is in the past six to 12 months.
In the long run of low interest rates, private equity funds, mutual funds and large investors such as sovereign wealth funds have huge sums of money, and are eager to invest a lot of money in science and technology.
Investors often want to inject more capital into startups in order to gain a larger proportion of their high-value stakes, even beyond the capital required by the startup, so that investors also buy shares from existing shareholders, Dissatisfied with the smaller number of newly issued shares, Letteri said that if you really trust a company, would rather invest more money, he did not mention the specific company name.
In the meantime, startups have opted to remain private for longer as ample capital is available, according to start-up data provider PitchBook. By the end of September this year, startups with a venture capital investment background awaited an average of 6.2 years IPO or sell itself to another company, compared to an average of 5 years waiting in 2008. This is especially true for large start-ups, with 10 of the top-rated start-ups, including Uber, AIG and WeWork Companies, the average time to set up 9 and a half years, but it is understood that none of these 10 companies listed in the short term.
Longer time-to-market schedules mean that early start-up employees and investors, with the wealth or investment gains associated with internal stocks, are hard or impossible to sell.Such an IPO may take years, Private equity secondary market transactions for them is a rare cash opportunity.
Scenic Advisement, a managing director at Scenic Advisement, said you can not (turn insider) a home. Scenic Advisement is a small investment bank specializing in private equity secondary market trading and wealth advisory services.
Some of the larger private companies have matured and started competing for talent with Facebook Inc. and GOOG Inc.'s Google Corp. Facebook and Google use their stock options to motivate employees, Much more.
In the meantime, some venture capital firms are under pressure from investors to make profit returns, and most of the assets held by these VCs are still in the private equity market, said Semil Shah, a general partner at investment start-up Haystack, The sale of shares in two companies he invested in secondary market trading, one of the aims of this move, is to show his investors that he can get some cash back, saying that it is risk management and that he wants to lock in that part of the return.
However, there is a price to trade in these PEs, which usually have a discount on the price of the shares, which can not be easily resold and which usually have a higher priority than the shares bought directly by the investment target company Less, for example, when the value of the target company's shrinkage protection measures.
It is difficult to quantify Tier 2 PE transactions as these transactions are usually not publicly disclosed and the data are not readily available.But the growth of Tier 2 PE transactions will be warmly welcomed by real estate and luxury car suppliers in the Bay Area. The first thing that comes to mind when you get rich is often the purchase of luxury homes and luxury cars.
Uber - Softbank's deal could create a large number of new millionaires, depending on how many early employees of Uber has taken over Softbank's takeover offer.
Joel Goodrich, a real estate agent in San Francisco who specializes in high-end real estate, said it will undoubtedly have an impact on the market, adding a large number of new buyers there.