Mutual fund managers and private equity funds can easily buy shares in Facebook and Twitter. Finding more obscure technology companies to invest in before their initial public offerings is a greater challenge.
Equidity, a Silicon Valley business that helps entrepreneurs link up with institutional investors, aims to change that. The company is introducing technology on Wednesday, May 4, that spotlights the hundreds of startups that don't have the recognition of Facebook, Groupon, or Twitter. "There are another 200 companies below them, many making over $100 million in revenue, and yet they're invisible," says Chief Executive Officer Mona DeFrawi. "We're helping them connect to public buyers."
The idea is to showcase companies that may be too big to attract venture capitalists, yet aren't sufficiently well-known to be traded on private exchanges such as SecondMarket and SharesPost. Institutional investors such as T. Rowe Price Group (TROW) and Fidelity Investments are eager to find these businesses, which often aren't consumer-focused dot-coms. About two dozen firms with more than $1 trillion in total assets under management have already signed up for the service, DeFrawi says.
Less Guessing About Startups' Data
Equidity, based in Woodside, Calif., is letting companies provide whatever level of financial information they want. Based on that data, institutional investors can determine valuations. Private companies aren't required to disclose financial data, so buyers in the secondary market are often left guessing about their worth.
Equidity is also hosting forums to connect startups with investors. The first will be held in November in Menlo Park, Calif., where 50 of the "hottest late-stage and up-and-coming companies" can have one-on-one meetings with investors, the company said. Equidity aims to make money from sponsorships, a pre-IPO advisory business, and eventually from events.
DeFrawi, who sold her previous company to New York-based SecondMarket in 2009, is one of four co-founders of Equidity. The company has received a small round of venture funding.