NASDAQ Private Market Launches New Capital Marketplace for Private Companies | Practical Law

NASDAQ Private Market Launches New Capital Marketplace for Private Companies | Practical Law

NASDAQ Private Market launched a new capital marketplace to manage secondary market transactions in private company shares.

NASDAQ Private Market Launches New Capital Marketplace for Private Companies

Practical Law Legal Update 7-559-8825 (Approx. 3 pages)

NASDAQ Private Market Launches New Capital Marketplace for Private Companies

by Practical Law Corporate & Securities
Published on 06 Mar 2014 • USA (National/Federal)
NASDAQ Private Market launched a new capital marketplace to manage secondary market transactions in private company shares.
On March 5, 2014, NASDAQ Private Market announced the launch of its new capital marketplace. NASDAQ Private Market will provide qualifying private companies tools and resources to:
  • Efficiently raise capital.
  • Control secondary transactions.
  • Manage their equity-related functions.
Securities-related services are offered through a broker-dealer subsidiary.
To qualify, member companies must meet at least one of the following criteria:
  • $30 million in funding within the prior two years and an enterprise value (based on most recent financing round/NASDAQ Private Market transaction) of $50 million.
  • Total assets and annual revenue of $50 million each in the latest fiscal year, or in two of the last three fiscal years.
  • Annual net income of $750,000 in the latest fiscal year, or in two of the last three fiscal years.
  • $5 million in shareholders' equity and a two-year operating history.
  • Backing by recognized financial investor(s) with a track record of successful venture investments. This is defined as a qualified entity that:
    • has invested in at least three private equity investments over the prior two years or has at least $50 million under management; and
    • has a significant investment in the company.
In addition, member companies must meet certain reporting and disclosure requirements to its investors initially and on a continual basis. These include audited annual financial statements and unaudited quarterly financial statements. NASDAQ Private Market also recommends following its governance guidelines.

Practical Implications

The secondary market for private company shares increased dramatically in popularity before the IPOs of Facebook and Twitter. More recently, private companies seeking better control over their shareholder base have shifted that popularity toward planned, company controlled liquidity programs for its employees and shareholders. We have seen both SecondMarket and now NASDAQ Private Marketplace develop business plans that help private companies do this and to stay private longer (or perhaps, permanently) or to make a smoother transition to public markets or an M&A liquidity event.
To learn more about secondary market trading of private company shares, see Practice Note, Secondary Market Trading of Private Company Shares.