Competition grows for employee liquidity deals

The market for employee liquidity has grown in terms of types of deals and buyers, explained W Capital Partners managing partner David Wachter.

Employee liquidity opportunities in the direct secondaries market have grown significantly since firms like W Capital Partners began investing in the space in 2002.

These types of deals, which give former founders and employees in private companies the opportunity to sell their stock, are a common type of transaction in the direct secondaries market. It’s “no longer taboo” and is “embraced by innovative private companies”, Industry Ventures chief executive officer and founder Hans Swildens said last year.

David Wachter
David Wachter

“It’s not the same size market with more competitors, it’s a broader market with different types of buyers,” W Capital managing partner David Wachter told Secondaries Investor. 

He added other types of deals to come to market include early-stage venture capital investors selling their positions into later funding rounds, company founders who have left their companies and want liquidity and many sales in ‘unicorns’ – companies that have reached multi-billion dollar valuations.

“All of those are different in terms of size of deal and stage of the company,” Wachter said. “The idea of shareholder and employee liquidity is growing to some extent in each of those categories.”

A growth in types of deals also means more buyers: for example Fidelity Investments, Wellington Management Company and BlackRock are active buyers in pre-IPO secondaries, Wachter explained.

Wellington declined to comment and spokespersons from Fidelity and BlackRock did not return a request for comment by press time.

Meanwhile W Capital has tended to focus on deals between $10 million and $50 million that span the late-stage venture capital and growth equity through to buyout and co-investment stages.

“That’s always been the case and we think that’s the best fit for our value proposition and strategy,” Wachter said.

Wachter declined to comment on the firm’s latest secondaries fund, but Secondaries Investor previously revealed about 30 percent of the fund had been deployed as of September. Fund III closed on its $750 million hard-cap in July 2013.