Introducing A New Way To Deal With Private Securities
Investors and company shareholders now have another way to monetize their holdings. 1exchange or 1X is a secondary market for private securities. It gives investors the unique ability to buy and sell private companies shares in a regulated, centralized and transparent manner. 1X is developed with strong support from our world-class partners, including Singapore Exchange and Consensys.
We started 1X because we believe it is important for private company shareholders to have exit options for partial liquidity. Historically, sophisticated investors seeking above-market returns have allocated investments into promising private companies and made attractive returns when these companies go public or get acquired. However, companies are staying private longer these days, due to the unprecedented availability of private capital, currently at a record high of USD 1.7 Bn[1]. Companies can now raise larger rounds of private financing and stay private for a longer period of time. As a result, investors and shareholders are often unable to monetize their assets and recycle their capital.
Typical exit options for private companies often come with limitations. An initial public offering (IPO) or public listing, while highly desired because it can provide fair value for all shareholders, typically requires significant costs and effort. The process may not make commercial sense if the exit size is too small, or when the company is not raising new capital.
Meanwhile, a direct secondary sale is often very difficult to execute in practice. Unlike publicly-listed companies, private company shares typically contain complex terms and obligations. These often limit the universe of buyers with both ability and capacity to buy such securities. Shareholders who sell often do so at highly discounted valuation, preventing them from capturing the full value of their assets. For the vast majority of shareholders, billions of dollars of equity value are simply locked up, with no visibility of exit.
The 1X team members are investors and shareholders in private companies too, we are all too familiar with limitations that current exit options have. In our previous roles as professional fund managers, we spent countless time and energy to come up with solutions for ourselves and our stakeholders. This problem will only get worse, as trends like online crowdfunding opens up alternative assets to a wider community of investors. As investing in private companies becomes easier, more investors will soon realize that the real difficulty lies in finding a cost-effective exit that allows them to realize their investments.
With the support of shareholders including Singapore Exchange, we have designed 1X to provide a new option for early shareholders to do partial exits. By simplifying private shares and removing all complex rights and obligations, we enable a wider investor community to assess and participate in secondary shares. As a centralized trading venue for private securities, 1X addresses the illiquidity issue faced by investors. Companies on our platform comply with “light touch” listing rules that provide investors adequate investor protection while allowing growth companies to thrive. In the long term, we aim to increase active capital recycling and promote more liquidity throughout the capital market.
While we have taken the first step for our private exchange, we also believe that evolving technologies such as blockchain can supercharge our efforts. We have partnered with global blockchain powerhouse ConsenSys to further enhance the security, transparency and accessibility of our private exchange through technology. With blockchain, we can embed business logic on a public ledger, and automate conventional processes to be secure and highly compliant while reducing costs. In other words, various processes such as Know-Your-Client (KYC) / Anti-Money Laundering (AML), order matching, trading and settlement, and corporate actions can be executed without the need for financial intermediaries or expensive back offices. Blockchain also opens up the possibility of 1X tapping into global liquidity and asset pools, under common regulations and dependable security. By tapping into blockchain, we aim to allow investors a cost effective, transparent and secure way to access and trade the most promising private companies.
We thank all our stakeholders for their guidance and support as we embark on this journey. Stay tuned for more from the 1exchange team.
[1] . Global Private Equity Report 2017, Bain & Company
