Article Abstract Technology 07
Private Markets

Want to Execute Your Own Liquidity Program? 3 Reasons You Shouldn’t Go It Alone

Want to Execute Your Own Liquidity Program? 3 Reasons You Shouldn’t Go It Alone

  • By the Nasdaq Private Market Team

From Airbnb to SpaceX, there are currently 423 unicorn companies, with a cumulative valuation of $1.32 billion.1 

Less than a decade ago, many of these companies would have felt the pressure to go public. But with the Jobs Act of 2012 and changes in federal reporting requirements, many successful companies with high growth and high valuations are choosing to stay private. 

Despite the benefits to the company of delaying—or completely foregoing – an IPO, it can come at the expense of liquidity for shareholders, including employees. To provide a return for these early believers, some private companies have turned to conducting liquidity programs in the shape of a company repurchase or private tender offer. If your company is considering doing it entirely in-house—there are several risks that may emerge.

Here are three reasons to reconsider this approach:

Reason #1: It Can Increase Your Costs

A private company may choose to execute its own liquidity program because of sensitivity around information and disclosures. However, a perceived reduction in cost is an even bigger reason companies choose this go-it-alone approach.

Your company might believe it’s more cost-efficient to facilitate your liquidity program in-house, rather than paying both your counsel and a third-party liquidity solutions provider. However, this approach could lead to a more manual, time-intensive, and costly process. Law firms with expertise in executing private liquidity programs bring experience and technology solutions from third-party providers, which can help keep overall program costs down.

Reason #2: It Can be More Time-Consuming and Inefficient

Rather than relying on a manual process filled with paperwork, a comprehensive technology platform can handle your program from start to finish.

Without the right platform, distributing the necessary disclosure materials securely and confidentially can be difficult. Tracking receipt of disclosures also can be a challenge. Displaying and communicating the eligibility and sellable rules of the program becomes more cumbersome, as well.

With no technology to enforce sellable rules and display holdings data accurately, participants could submit incorrect sell indications. Erroneous submissions and incorrect data can potentially result in higher legal fees to fix these mistakes after a liquidity event. All of this can create inefficiencies, reduce transparency, and make the process more error-prone.

Reason #3: It Distracts Your Organization

Executing a liquidity program is a complex, time-intensive process. Unfortunately, it is common to underestimate the resources required. 

Keep in mind that while you’re executing a liquidity program, you still have to run your day-to-day business. Maintaining transparency and tracking activity will require a dedicated employee, meaning you’ll have to move valuable resources away from your core business to focus on this task. Handling this in-house can be a major distraction for your company. Plus, improper planning and rushing into the offering could pave the way for a poor experience for eligible sellers. 

Why You Shouldn’t Go It Alone

Working with an experienced strategic partner can give your company access to expertise and technology solutions that streamline your liquidity program process. With a robust technology platform like that of Nasdaq Private Market, you can centralize the collection and tracking of seller indications and execution of transaction documents in one platform. An experienced strategic partner also can work side-by-side with your outside counsel, implement measures designed to safeguard your company’s internal data and confidentiality, and provide invaluable insight to help you effectively set up your program—from preparation all the way through settlement and payment.

Rather than go it alone, mediate the distraction and company resources necessary by working with a strategic partner to give your shareholders, employees, and early-stage investors the returns for which they’ve waited.

Considering a liquidity program? Download “Nasdaq Private Market: A Review of the Private Company Secondary Market and Structures” to learn more.

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, each of which is a member FINRA/SIPC and wholly owned subsidiary of The NASDAQ Private Market, LLC. Securities in transactions conducted through NPM Securities, LLC or 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.

1 https://www.cbinsights.com/research-unicorn-companies

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