CircleUp introduces secondary market to create liquidity for private shares
Equity-based crowdfunding platform, CircleUp plan to introduce a secondary market, in response to demand from companies that have raised money on the platform. It will hold stock sales twice a year, with 15-20 companies participating in the initial launch. CircleUp will join others, including SecondMarket and SharesPost who have also created secondary markets for private shares, as the implosion of angel investing in the US and the emergence of the equity crowdfunding sector matures to present concerns over liquidity.
Back in March, billionaire businessman and investor, Mark Cuban, issued a warning about the current tech bubble in a blog post titled “Why This Tech Bubble is Worse Than the Tech Bubble of 2000”. Unlike other bubbles that were driven by rising stock market valuations, Cuban’s warning was toward private technology deals.

Specifically, Cuban focused on the potential implosion of the US angel investing market, which numbers close to a quarter of a million people, and the emerging equity crowdfunding sector. According to Cuban, the problem is a lack of Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term, which means that exiting stakes in these private firms is nearly impossible. Cuban concluded that “the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity”.

Secondary markets as the answer

While the lack of liquidity is an obvious problem, it’s one that many are trying to solve. Among the largest existing solutions are SecondMarket and SharesPost which have created secondary marketplaces for private shares. In addition, within the US, the alternative Stock Exchange Stock Exchange A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin Read this Term OTC Markets Group has shown interest in potentially setting up listings for shares of private companies that sold equity through crowdfunding platforms.

While the above initiatives provide solutions, one point of friction is that they are a marketplace of listings of shares that were first sold elsewhere. As such, the underlying shares are often created without secondary markets being involved, a factor which could contain potential stumbling blocks such as rights of first refusal clauses.

CircleUp secondary market

Emerging as a potential answer for both funding deals and follow-on liquidity through a secondary market is a new feature being launched by CircleUp. An equity crowdfunding platform for accredited investors and focused exclusively on consumer companies, CircleUp is introducing a secondary market as part of their platform.

Aiming to provide liquidity, as well as to provide investors with the ability to acquire stakes in companies that they were unable to be a part of during their initial crowdfunding campaign, the new secondary marketplace opens up stock sales twice a year. With fewer participants than stock exchanges, the half yearly secondary market provides time for price discovery and analysis of valuations for any equity sales.

Speaking to CNBC, CircleUp CEO and Co-Founder, Ryan Caldbeck, stated that the secondary market was driven by demand from companies that raised money on the platform. He added that “Helping to shorten the liquidity period or giving certainty over the exits is something that both sides are particularly excited about”. According to Caldbeck, 15 to 20 companies will be participating in the initial launch of the secondary market.