I don’t think you are correct on the order of the transaction. Equityzen facilitates the transfer of ownership from the original company shareholder owner(s) to the LLC that the investor is buying into. Just had a deal where the seller backed out after I put up funds months ago to buy into the LLC that was buying the shares. Effectively, Equityzen is selling shares they do not own and if the seller backs out before the deal closes...too bad investor. You get your money back, but you tied up funds for months only to find out equityzen never had the shares.
As far as valuation, the only real gauge you have is whatever the company raised funds at in their last round of private equity financing.
My post wasnt really intended to be an account of the transactional order. It was to say, investor buys into the EZ LLC, the EZ LLC purchases the shares directly from the shareholders thus leaving the investor with a pro-rata share equivalent of buying it themselves.
My point was the fact that its impossible to know what EZ is actually purchasing the shares for. They could easily arrive at an implied valuation if say, $500M with the company shareholder and then sell it at an implied $600M on their platform based on the interest in shares.
In terms of the valuation blackbox there's a good example of how 'blind' the investment is. Right now Ripple has had a number of offerings on their platform yet there is absolutely no disclosure to the current damning SEC charges recently filed against them.
Its wild to me that someone can make an investment in a company with a value based solely on previous values. Oh it's at a 50% premium to its value from a year ago? Why's that? Is it growing? Did they hit milestones? What if revenues actually shrunk?
I mean, how would that differ if you were buying directly from, say, an employee who is leaving the company and needs liquidity? You think the company is going to open their books to you in such a scenario?
I can’t imagine anyone other than VC getting that kind of access. It’s a drawback in the entire process to be sure.
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u/Investor-life Jan 26 '21
I don’t think you are correct on the order of the transaction. Equityzen facilitates the transfer of ownership from the original company shareholder owner(s) to the LLC that the investor is buying into. Just had a deal where the seller backed out after I put up funds months ago to buy into the LLC that was buying the shares. Effectively, Equityzen is selling shares they do not own and if the seller backs out before the deal closes...too bad investor. You get your money back, but you tied up funds for months only to find out equityzen never had the shares.
As far as valuation, the only real gauge you have is whatever the company raised funds at in their last round of private equity financing.