Exit Opportunities and the Micro-IPO

No one argues that exits are important for VCs and companies. While the IPO market is showing signs of life and some companies are able to exit through M&A, as we wrote yesterday, it’s taking longer for venture-backed companies to exit. The shortage of exit opportunities is creating a need for liquidity. Several companies are working on ways to fill this void with new alternatives.

One example is the launch of InsideVenture and their hybrid IPO model. They call it an HPPO: Hybrid Public Private Offering and it requires the company to file an S-1 with the SEC, but helps the company raise money from existing investors and qualified retail investors. While the new model is still untested, we see this as a sign that the venture community is taking seriously the NVCA’s recommendation to “cultivate new buyers/funds specializing in venture IPOs.” Other companies including XChange, SharesPost, Second Market and Startup Exchange are also trying to open other avenues for investors to liquidate positions in privately-held startups.

We don’t know yet if these models will catch on, but they seem to make a lot of sense. It gives founders an ability to diversify the concentration of their wealth they typically have tied up in their business. It gives investors an ability to get in on promising companies that aren’t strong IPO candidates. And it creates a general marketplace for securities that parties have an interest in buying or selling, which economic theory would tell us should drive to efficient pricing and deployment of capital. We’ll be monitoring this to see how these marketplaces progress but overall view this as a positive addition to the exit landscape.