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Q&A

Sizing Up the Private Tech Markets

For the well-connected in Silicon Valley, there is no shortage of ways to participate in the private tech company land rush.

There’s also no shortage of prognosticating on which companies will remain standing when the funding environment turns.

Justin Fishner-Wolfson, founder of investment firm 137 Ventures, has an interesting perspective on both topics. After working at Founders Fund, the 32-year-old started 137 Ventures in 2011 to help early startup employees get cash as they wait longer for their companies to go public.

The details are complex, largely because companies don’t want their employees cashing out and forbid them from doing so, often for good reason. Side deals can muck with valuations, create the perception employees are losing faith and lead to an array of logistical challenges for startups.

There are still lots of gray areas around what sort of transactions companies do and don’t allow. The firm says it works within companies’ rules by structuring deals such as agreeing to buy employees’ shares at some point in the future and providing loans tied to the value of those shares.

137 Ventures has landed holdings or exposure to holdings in SolarCity, Spotify, Palantir and Eventbrite, among others. The group has raised two funds, the second of which was $137 million, and target employees whose stakes are worth seven figures, sometimes less. (Similar firms include Industry Ventures, ESO Ventures and Battery East.)

Mr. Fishner-Wolfson spoke with The Information about companies’ changing attitudes towards secondary sales, mistakes investors make in valuing companies and whether it matters that some employees cash out when others don't. Edited excerpts below.

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Part of it was recognizing a gap in the marketplace. I would rather have less competition. What I have discovered is it is a lot more personal when you wire individual people money than when you wire it to their companies. In venture, you are trying to provide a service to the ecosystem. It is a service business.

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