The Lucrative Stock Option Pool
In privately held companies, employees and founders own significant percentages of the total stock option pool. Startup employees and other private company workers typically own 10% to 15% of the stock, whereas founders often have a 50% stake. The remaining shares are held by investors. For instance, when Uber Technologies Inc. (UBER) went public in 2019, it minted approximately 1,000 millionaires among its insiders who held stock.
Expanding Horizons
The private stock market is no longer limited to just Silicon Valley software and tech companies. It now encompasses drug companies, biotech firms, and financial services entities. Additionally, specialists in artificial intelligence, consumer technology, food technology, and industrials also offer private stock.
Unlocking Liquidity with Forge Global
Private company stockholders can take advantage of liquidity by selling their stock via Forge Global. The company specializes in marketplace infrastructure, data services, and technology to facilitate secure transactions. Moreover, when private stockholders sell all or part of their shares, they may qualify as accredited investors if they own at least $1 million in assets, excluding their primary residence’s value. Accredited and qualified investors can not only sell private stock on the Forge Global platform but also purchase it.
Expansion of the Private Stock Market
Nasdaq Inc. (NDAQ) has established Nasdaq Private Markets (NPM) with support from Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), and Allen & Company. Additionally, eShares, Inc., operating as Carta Inc., provides liquidity solutions for pre-IPO shares. These players, along with Forge Global, have amplified the scale of the private stock equity market.
Prioritizing Private Growth
As companies choose to remain private for more extended periods, their valuations at the time of initial public offerings (IPOs) are significantly higher than before. For example, Amazon.com (AMZN) had a market cap of just $440 million during its 1997 IPO, while Arm Holdings (ARM) saw a $55 billion market cap at its IPO in September. Therefore, much of the value creation in startups occurs in the private markets prior to their IPOs.
Forge Global has developed the Forge Private Market Index to track the value of private companies. This index consists of 73 components, including well-known entities such as ZocDoc, Stripe, SpaceX, Ripple, Plaid, Kraken, Impossible Foods, Epic Games, Chime, and Anduril. Investing $10,000 in the Forge Private Market Index in 2019 would have yielded a 121% return, bringing the current value to approximately $22,000. This product resembles the approach taken by exchange-traded fund providers like Fidelity, which use indexes from authoritative sources such as Dow Jones or Standard & Poor’s to build diversified stock portfolios.
Accuidity will introduce Forge Global’s second index in early 2024, offering access to late-stage, venture-backed private companies. The specific components of the index will be disclosed at that time and made available to investors through registered investment advisers, family offices, and other wealth managers.
Democratizing Access to Private Equity
While institutional investors typically allocate 10% to 20% of their holdings to alternative assets, wealthy individuals have historically had limited exposure to this asset class, typically in the low single-digit percentage range. However, Gubitosi notes that Forge Global’s index provides efficient and institutionally managed access to private equity for the first time. Forge Global has experienced significant growth this year, with increasing transaction volume on its platform. In the third quarter, transaction volume reached $253 million, marking a 53% increase from the previous quarter. Forge Global’s stock has also performed favorably in 2023, achieving a 127% gain, surpassing the Nasdaq’s 42.3% increase.