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How Wall Street Middlemen Help Silicon Valley Employees Cash In Early
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Pulliam and Demos look at the murky world of pre IPO trading of shares by venture capital companies and by employees of the pre-IPO companies in the secondary market. Federal and state laws permit pre-IPO trading for unregistered securities. The SEC has not issued more than a couple of enforcement actions for the trading of pre-IPO shares from startup companies. Wealth is now created before an IPO is done. During the 2000 tech boom most of the surge in price happened after the IPO- Amazon's IPO giving the company a valuation of $400 million based on IPO price then, compared to $171 billion in 2015, and Facebook worth $104 billion at the IPO price in 2012, and twice that in 2015. 78 privately held companies are worth over $1 billion in 2015, with combined valuation of $310 billion. The surge in prices of pre-IPO shares comes from the huge demand from investors, who are willing to accept that not much financial information will be disclosed by the startup companies, in the hope of quickly earning a large profit. The estimates of pre-IPO trading for the shares is in the range of $10- $30 billion in shares traded in 2014. This is what the WSJ's Puliam and Demos learned from extensive interviews with traders, investmetn bankers, hedge fund managers, venture capital executives, lawyers and company officials.
The murky world of pre-IPO trading of shares in startup companies
03/28/2015
An estimated $10-$30 billion in shares of pre-IPO startup companies trade in a financial market involving venture capital companies, hedge funds, employees of the startups, the startup companies, and public investors, outside the scrutiny of federal and state regulators. The SEC has issued only a couple of enforcement actions. Federal and state laws permit such pre-IPO trading of unregistered securities. As a result wealth is now created in large part even before the IPO happens as the prices are orchestrated up much earlier, and startups can as a result delay the actual IPO till about 6-7 years later on average.
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