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Market Insights10 Mins Read

Everything there’s to know about Private Markets

Currently, there’s a lot of wealth that resides in private markets. We know that public markets have acted as the most significant source of capital and liquidity for companies. However, this liquidity has slowly been shifting to private markets. Researchers estimate that the private markets are growing at twice the rate of their public counterparts. In 2020private equity secondaries raised around US $87B, tripling their 2019 totals. Additionally, VC investments in private markets have reached over US $280B just in the first two quarters of 2021, breaking the record high level of investments in 2020.

So why is there so much traction in the private space?

For example Grab announced a SPAC merger recently which values the company at a valuation of US$40B. As opposed to its last private funding round which valued the company at US$14.9B in October 2019.

An example of another blockbuster IPO was that of Airbnb. A company that was valued at US$31B during its last round of funding, listed at a valuation of US$47B on the stock market.

Until recently, these opportunities and their many benefits have only been available to institutions. Now platforms like Kristal.AI are democratizing access to these companies so that individuals like you can access quality investment opportunities in high-growth startups and pre-IPO companies.

All you need to know before investing in private markets

Investing in private markets can take the shape of 2 types of transactions

1. Primary

A primary round of fundraising is when the company issues new shares at an estimated pre-money valuation and raises fresh funds from new or existing investors for purposes such as growth, expansion, etc.

As an investor, you can participate in primary funding rounds and co-invest through entities like Kristal.AI and gain a shareholding interest in the company
2. Secondary

A secondary transaction occurs when an existing shareholder sells their shares in the company to another entity

The seller is required to notify the company of this proposed transaction. This notification triggers the right of first refusal (ROFR). This gives existing shareholders the first right to the shares to be transferred by the other existing shareholders. The transaction can be successful only when the ROFR is waived

The right of ROFR can be exercised during a typical 30 day period after which it lapses
ROFR is an inherent risk with any secondary private market transaction
You can get access to pre-IPO companies and high growth startups through secondary transactions, and platforms like Kristal.AI can give you access to such transactions.

Worried how you can exit once you’ve invested in private markets? Existing investors into private companies typically get an exit or can liquidate only when the company goes public. These are some of the common ways in which a company can go public.

 

Direct Listing

  • The company lists on the stock exchange and the shares become freely tradeable on the exchange
  • There is no lock-in period or fresh issue of shares with a direct listing

IPO

  • They offer shares in their company to the public in a new stock issuance
  • Existing investors are subject to a lock-in period during which they cannot liquidate or monetize their shares
  • It is after this lock-in period that they are allowed to trade their shares in the stock market

SPAC

  • The private company merges with a public shell corporation in order to go public
  • Similar to an IPO, there is a lock-in period with a SPAC merger as well

A private company might indeed take some time before it goes public. If you’re concerned about being locked in till then don’t worry! Companies like Kristal.AI aim to enhance the liquidity in this very space to give you flexibility. While an IPO or any other mode of going public is a common mode of exit for investors in private companies it is not the only mode of exit that is available. If you don’t want to wait until the company goes public and want to exit earlier, companies or platforms like us can enable you to do so by providing an exit when you wish at market value through a secondary sale.

Contributions by Navya Lodha interning with Kristal.AI

Disclaimer

This blog article has not been reviewed by the MAS. It is prepared solely for information purposes and does not constitute an offer or solicitation for the purchase or sale of units in the funds. This does not constitute any form of investment advice and Kristal Advisors (SG) Pte Ltd does not take into account your personal investment objectives, specific investment goals, specific needs, or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Kristal Advisors (SG) Pte Ltd.

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Accredited Investor Declaration

This is offered only to Accredited and Institutional Investors as defined under the Securities and Futures Act, Chapter 289 of Singapore (“Act”), which broadly comprises of regulated financial Institutions, large corporates, high net worth individuals and sophisticated investors.

An Accredited Investor is an individual
  • Whose net personal assets exceed in value SGD 2 million (or it’s equivalent in a foreign currency) with value of his/her primary residence capped at SGD 1 million, or
  • Whose financial assets (net of any related liabilities) exceed in value SGD 1 million (or it’s equivalent in a foreign currency), or
  • Whose income in the preceding 12 months is not less than SGD 300,000 (or it’s equivalent in a foreign currency)

I agree to opt-in as Accredited Investor and will submit required documentation to confirm the same.

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