Private Tech Prices Jump in Secondary Market

A SpaceX launch in Cape Canaveral, Fla., on June 3. Photo by Associated Press (Bill Ingalls/NASA via CNP).

Shares of many large private technology companies have seen a run-up in prices and trading activity this year on the secondary markets, brokers say, rebounding from a sluggish 2016.

Fueling the surge in the secondary markets, in which employees and early investors of a private company sell their shares, is growing interest from institutional and overseas investors, who are encouraged by the same macroeconomic conditions that have lifted the public markets in the past year. Even after a two-day sell-off, the S&P 500 tech sector is up 31% in the last 12 months.

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Many other companies are more restrictive, or may opt to sponsor occasional shareholder buybacks and tender offers at controlled prices. Most buyers don’t have access to those controlled deals, so trading volume is low. When deals do get done, they are often structured in a way to get around direct transfer restrictions. Buyers might purchase interests in funds known as special purpose vehicles, or use forward contracts. Those tend to be smaller deals of between $5 million and $20 million.

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“There is a lot of desire to invest before the IPO, before the day one pop, before all the growth is priced in.”