MicroVentures is a venture capital investment bank which makes about 40 percent of its investments in secondaries, founder and chief executive officer Bill Clark told Secondaries Investor.
The Austin-based firm invests on behalf of about 9,000 accredited investors, who are mostly individual angel investors or entrepreneurs looking to commit small amounts of capital to late-stage pre-initial public offering companies.
Most of MicroVentures’ secondaries investments are focused on secondary shares in late-stage pre-IPO technology companies, 5 percent is focused on limited partner venture capital fund interests and 5 percent is focused on real estate secondaries.
“We’re interested in LP venture capital fund interests and have provided a few investment opportunities last year,” said Clark. “It has been a small piece of our investment strategy but as we look at providing additional diversification opportunities to investors later this year we plan on adding more investments as they arise.”
The other half of the firm’s strategy is geared toward direct investments in early-stage start-ups.
MicroVentures selects companies that are likely to have a liquidity event in the next 24 months and then offers the investment to its clients. It typically raises about $1.5 million to $2 million for each secondary investment.
Most of the secondary sellers in this end of the market are founders, former employees or investors and it’s common for investments to price at a 15 percent discount to the last round of funding. One reason for this discount is because typically you are purchasing common shares vs the preferred with a liquidity preference, Clark explained.
“Occasionally we will come across shares that we believe are over inflated or are priced too high for our interest. We will avoid those shares and use our research and valuation analysis to determine if the price is in line with current milestones,” he added.
MicroVentures’ practice is along the same lines as private securities firm SharesPost and transaction software company SecondMarket, although Clark said competition has narrowed to a few smaller firms in recent years.
“There are a lot of smaller firms or funds that are purchasing secondary shares. As insiders get access we are seeing special purpose vehicles being formed to consolidate shares. Additionally smaller firms are attempting to pool money to purchase shares. As companies continue to be selective of the investors on the cap table I imagine that there will be a consolidation of the industry at some point.”