An Introduction to Secondary Auctions for Private Companies

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Secondary transactions in the venture capital (VC)-backed, private company space have increased over the past several years. The tender offer continues to be the most common transaction structure; however, private companies and their shareholders are interested in alternative approaches - private, secondary auctions. In Nasdaq Private Market's latest whitepaper, "An Introduction to Secondary Auctions for Private Companies," we discuss how various auction structures can provide more market-driven pricing and potentially allow employees and shareholders to be more involved in the transaction itself.

  • What is an auction?
    In its simplest form, an auction is a process in which potential buyers place bids on assets or services, with the intention of becoming the highest bidder and purchasing the asset or service for that amount 1 . Nasdaq Private Market's technology has the ability to run variations of English, Dutch, first price and second price auctions as well as customize programs to meet a company's specific needs.
  • Advantages and disadvantages of auction-based transactions
    Secondary auctions come with potential benefits as well as possible risks. Auctions can be beneficial for the sponsor company when considering competitive pricing, speed of transaction process, and flexibility in customizing the process. However, factors such as higher prices, minimal seller input in certain program structures like buy-side auctions, and the risk of a price mismatch between buyers and sellers should be evaluated before running an auction.
  • Client Case Study
    Nasdaq Private Market operated this new buy-side auction transaction model with a B2B client, which gave investors the opportunity to purchase shares in the company and provided eligible sellers with access to liquidity at competitive prices.
  • Best practices when structuring an auction
    There are numerous factors that determine the success of an auction, including the demand from both the sell-side and buy-side and the ability to create a more competitive bidding process. Rigorous due diligence, company meetings or calls with potential investors, and the use of standardized agreements and documentation are all important contributors to a successful auction.

With a proven software platform and an experienced team which has facilitated more than 230 transactions since 2013, Nasdaq Private Market helps companies provide liquidity for their shareholders that potentially brings the private markets more value and customization. Learn more by accessing the whitepaper here .


The information contained herein is provided for informational and educational purposes only. The NASDAQ Private Market, LLC does not provide legal, tax, investment or financial advice.

None of the information provided herein, or information displayed on or downloadable from, nor any of the applications and services available, via the Nasdaq Private Market represents an offer to buy or sell, or the solicitation of an offer to buy or sell, any security, nor does it constitute an offer to provide legal, tax or investment advice or service.

Investing in private company stocks is speculative and involves a high degree of risk. You must be prepared to withstand a total loss of your investment. You are strongly encouraged to complete your own independent due diligence before investing in private company stock, including obtaining additional information, opinions, financial projections, and legal or other investment advice.

The NASDAQ Private Market, LLC is not: (a) a registered exchange under the Securities Exchange Act of 1934; (b) a registered investment advisor under the Investment Advisors Act of 1940; or (c) a financial or tax planner, and does not offer legal, financial, investment or tax advice to any user of the Nasdaq Private Market website.

Technology services may be offered by The NASDAQ Private Market, LLC's wholly-owned subsidiary, SecondMarket Solutions, Inc. Securities-related services are offered through NPM Securities, LLC a registered broker-dealer and alternative trading system and SMTX, LLC, a registered broker-dealer and a member FINRA/SIPC, each of which is a wholly-owned subsidiary of The NASDAQ Private Market, LLC. Securities in transactions conducted through NPM Securities, LLC and SMTX, LLC are not listed or traded on The Nasdaq Stock Market LLC, nor are the securities subject to the same listing or qualification standards applicable to securities listed or traded on The Nasdaq Stock Market LLC.

All technology and securities-related services are subject to standard terms and conditions applicable to each service. For terms and conditions applicable to use of each such service, prospective customers please contact sales@npm.com , and current customers please refer to your contract with The NASDAQ Private Market, LLC or its relevant affiliate or subsidiary relating to such service.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , MarketInsite

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