EquityZen Review-Secondary Stock Market Place

6 minutes

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EquityZen is a New-York based online platform founded in 2013. They enable the investor to invest in pre-IPO companies. Accredited investors and financial investment firms can invest in pre-IPO companies. In addition, people with vested options, ISOs, Restricted Stocks or Restricted Stock Units (RSU's) can use the platform.The market place act as an equity crowdfunding made it possible for public investors also as long as they fulfill the platform's requirements and criteria.

Equityzen also buys shares from the shareholder in private companies. It is hard to trade when the company is not public. Not to mention, that EquityZen solves this issue. They are offering money in equity from privately-funded companies. You must be an accredited investor to use the platform.

What is an accredited investor?

In fact, to be an “accredited investor” to trade with EquityZen, you must follow one of the SEC's criteria. (Security and exchange commission)

• Earn almost $200,000 for the last two years straight and expect the same this year.
• You and your life partner collectively earned $300,000 in the previous two years and expect the same this year.
• You have assets net worth of $1 million, excluding your primary residence's value.

Equityzen video explanation

How EquityZen works for investors

Not to mentioned, that you must be an “accredited investor” to start investing through EquityZen. You can't access this platform or collaborate with it until you prove yourself an accredited investor.

Investors can buy into the EquityZen fund. Then the platform buys shares from pre-IPO companies on their behalf. The investor must make a minimum investment of $10000 at the start. Moreover their is a holding period of 2-5 years for a single company. In this period, if the company goes public, the shares will be distributed to your brokerage account, or the cash will be deposited into your bank account.

EquityZen also offers to purchase into a pre-populated portfolio designed explicitly by the investment team of EquityZen. This option allows getting exposure of 4 to 25 companies from a single investment through EquityZen.

You can also read our tips for being a successful angel investor

How EquityZen works for shareholders

The platform buys equity from shareholders of privately-funded companies to liquidate their investment. As a result it can cash them in the case of shareholders. Shareholders first need to sign a non-disclosure contract and provide necessary documents to the EquityZen team to verify the assets and confirm equity ownership. 

Once they validate your identity, your equity will be listed in the marketplace so that buyers could purchase your shares. If there comes enough investor demand, the team members will make you sign an agreement and clear the transaction.

You will finalize the shares you want to offer and for what price. After the company approval, deals close within 2-3 weeks. Also EquityZen charges 5% for every deal.

After the deal finalizes, equity ownership is handed over to EquityZen. Then you can transfer cash to your external account.

Types of investments EquityZen offers

Moreover, they offer investment in large-stage companies, mainly tech companies, and others. You should sign up first and verify as an accredited investor to get access to the offers this platform offers. From the historical point of view and track record, the companies are near to IPO then a traditional startup investment in private companies.

What do you get when investing with EquityZen?

When you invest through them, an investor becomes a special-purpose entity (SPE) LLC member. Whenever the specified company you invest in goes public, investors will receive actual shares in their brokerage account from a company. During the whole period of SPE, you will get an annual K1 for paying taxes.

EquityZen Resources

One of many resources the platform offers:

•        FAQs
•        Newsletter
•        IPO Center
•        Blog
•        Knowledge Center

How does EquityZen make money?

It makes money through a commission from every deal. It charges 3-5% of the invested amount. So if you are going to invest $40,000, you would have to transfer 42,500 to EquityZen. Besides, EquityZen doesn't have AUM fees or carried interest.  

Potential returns and cashflow

Investments through secondary market places are high-risk investments from private companies. Mostly there are no clear expectations of payments and other cash flow. You can invest through this platform at your own risk because you can even lose some or all of the value. However, some investors achieve an outstanding return from their startup investments. It demands substantial diversification over time and careful investment selection. 

Pricing and fees

Equity offers several options for investments; you can invest either as a single company, direct acquisition, and managed funds options. It typically charges 5% on sale to the seller; the charges can be reduced for larger investments.

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Is EquityZen legit?

They are a registered company through SEC and a member of FINRA/SIPC firm. You can check their entry at FINRA's BrokerCheck service.

Both the broker-dealer have to follow due diligence requirements so that an investment is suitable for the registered customers. That still doesn't guarantee the investment return. All the investments are offered through SEC Reg D, and it can only work for accredited investors.

Only registered investors can view the information of the platform, including prior financing rounds and historical performance.

Conclusion

This review is unbiased and highly researched. Only an accredited investor can invest in this secondary market place. It provides opportunities to invest in pre- IPO private companies before they go public. Without a doubt, there are some hurdles in choosing this platform. It has high minimums and long holding periods. 

Before you invest, scan multiple options to choose to best suited to your requirements.