Private companies like Uber and Snapchat are not legally required to share financial information such as their valuation or the number of shares held by investors. For investors, that lack of transparency is something of a hazard.
Now Equidate, a market for trading shares of private companies, plans to lift the veil on some of that information. The company, based in San Francisco, said on Monday that it would make a host of data about private companies free and open to the public, drawing from corporate filings that include the prices that investors have paid to invest in the companies.
Equidate also plans to release tools that shareholders can use to calculate the value of their private-company stock holdings.
"We're giving away this data to help create a more robust market and to give stakeholders like employees, investors and other shareholders a better way to understand the value of their stock," said Sohail Prasad, a co-founder of Equidate.
The lack of transparency around private companies, along with a scarcity of shares, has kept the market for start-up stocks fairly small.
About $750 million of private shares are actively listed for sale on the Equidate marketplace.
By comparison, the total public stock market in the United States includes trillions of dollars of shares.
To buoy the market for private-company shares, a handful of start-ups have worked to increase transparency and liquidity.
Apart from Equidate, the start-up eShares lets privately held companies electronically issue and manage their shares so that investors know who owns what piece of the company at any given time.
While information about private companies does exist, it is typically fragmented or hard to find in corporate filings without paying thousands of dollars a year to data-service companies.
With Equidate's new data service and tools, investors can easily see what the current share price of a private company like Lyft might be on the Equidate marketplace and compare it with the price that venture investors and other institutions paid in the past.
"For the last few years, a lot of companies raised money without having to share much data," said Semil Shah, an investor with Haystack Fund, a venture capital firm. "Things have swung in the other direction."
Shah said that nearly everything about the private markets is opaque, including what information is shared between companies and their potential venture investors, and even between the venture firms and the investors whose money they manage.
While the lack of disclosure can help entrepreneurs by giving them time to build businesses without scrutiny and can help venture investors negotiate more favourable deals, it can also increase risks for investors who may not fully understand what they are buying, he said.
Regulators are also taking a closer look at the marketplaces for trading private-company stock, which are generally known as secondary markets.
Mary Jo White, chairwoman of the Securities and Exchange Commission, said in a March speech that in the past, private-company secondary markets were rife with issues including conflicts of interest and fraud.
"These issues stemmed, in part, from the fact that secondary-market investors did not have access to accurate information concerning the value of the companies in which they were investing," White said. An SEC spokesman declined to comment on Equidate. Prasad says Equidate, which was founded in 2013 and is backed by a group of technology investors, has been working with regulators since 2014.
In January, Equidate bought a regulated broker-dealer, which means that the deals made on Equidate must comply with securities rules and have some investor protection and disclosure.
©2016 The New York Times News Service
