Forge Global, a marketplace individual and institutional investors use to buy and sell shares of mostly venture-backed private companies, says it is a small step closer to making the secondary market as efficient as the one for public stocks.
Buying and selling shares of private companies is, by definition, more cumbersome than shares of public ones. After all, founders and their VC backers have avoided the public markets to escape disclosure requirements and short-term shareholders (among many other reasons).
Fewer shares of private companies change hands, rights of first refusal are common so sellers must notify companies of transactions, and price discovery can be challenging. Big transactions — those for $5 million or more — still require buyers and sellers to pick up the phone and work with a broker. But companies are staying private longer and investors are allocating more to them, making for a growing and busier secondary market.
The Forge data platform has helped inventors see trades and interest in certain shares. Now, to meet the demands of its institutional clients, the company has launched Forge Pro to help them manage the process leading up to a trade. Although investors will still need to engage one of Forge’s 30 brokers, they will be able to independently view the company's whole book, including bid-ask spreads, available shares, and the status of their trades.
“What we've really added to that with Pro is to make the data actionable where you can actually submit IOI, you can manage your IOI, you can look at your dashboard, and monitor things through the trade process,” James Brooks, chief product officer and chief commercial officer at Forge, said. “We don't want to get too far over our skis here, but it's the foundation of which you could think about an order management system.”
It’s another part of modernization that other markets went through seemingly ages ago.
Forge has more than 636,000 registered users including more than 18,000 institutions. Its institutional users include a variety of investors including hedge funds, private equity funds, venture capital firms, and family offices. A short list of longtime customers have been using and helping Forge develop Pro.
Ultimately, Forge wants to grow the secondary market and the company thinks it will by consolidating everything that goes into a private transaction on one platform.
“People don't want to have to go to a lot of different places to find their liquidity. They want to go to one place, have good price discovery, and then use that place that has price discovery to go source the liquidity,” Brooks said.
Like in public markets, private market prices and sentiment change. After a brutal stretch for venture capital while interest rates were rising, things seem to be looking up. In 2023, the Forge Private Market Index declined more than 20 percent while the S&P 500 index gained more than 20 percent and the IPO market effectively froze. But in February, there were more buyers than sellers on Forge for the first time since November 2021.
In a report Monday, BlackRock said the 2023 secondary market for private funds had its second highest year ever in terms of closed transaction volume: $115 billion. In 2022 and 2023, venture funds traded at 68 percent of their net asset value and there is still more supply than demand this year, according to BlackRock.
Fears of a recession or an especially cloudy future for markets aren’t enough to totally abate interest in owning shares of private companies. Overall, activity on Forge is increasing, said Brooks, who joined the firm early this year from Intercontinental Exchange.
“The number of general inquiries we're getting for data, and for the index, and for more access to the market is increasing. And I don't think that will let up regardless of whether the market goes up or down,” he said.
