“I ended up with about six people who were desperate to sell because their personal circumstances had changed. I had other people who wanted to buy in. My lawyer said ‘don’t get involved, it’s too complex and onerous’.”
Ross is the first private company to complete more than $70,000 of share trades on a new market for trading private companies, launched by the founder of ASX-listed share trading platform Selfwealth and former CBA executive Andrew Ward.
The new marketplace called Liquidise is backed by wealthy family offices and venture capital funds including Peter Devine at Beachhead, Sapien Ventures and Ron Lesh, with a $100 million pipeline of private companies set to trade including Holon Investments, Hellyer Metals, New Quantum, and LOVE TO.
Ward says the platform could also help workers who have equity trapped in the growing pool of employee share schemes.
But Angel Zhong, a senior finance lecturer at RMIT University, warns that alternative investments like crowdfunding and financial innovations like Liquidise, created to help solve their problems, also come with new risks.
“The desire of some investors, especially retail investors, to retrieve their equity crowdfunding investments amid rising living costs highlights the … varying levels of financial literacy in alternative investments,” she said.
“Funds that circumvent licensing agreements to facilitate the buying and selling of investments in private equity may expose investors to an array of risks.”
More investors are turning to private markets than ever before. Fewer than 15 per cent of US companies with revenues over $100 million are listed while the total number of IPOs in Australia dropped by 54 per cent last year.
Dr Zhong cautioned Labor against tightening the test for sophisticated investors, as Treasury considers whether to increase the threshold from $2.5 million in net assets to $4.5 million. Assistant Treasurer Stephen Jones says no decision has been reached.
Dr Zhong warned raising the threshold would cut off investors from access to these growing opportunities. “It may restrict consumer choice and access to investment opportunities,” she said.
Mr Ward argued that private companies would have to meet minimum valuation and profitability requirements and undergo third-party due diligence to use his platform. Shares will only be offered to pre-qualified and approved investors.
“A lot of people have been trying to solve the same problem, everyone has been searching for this holy grail,” he said.
Mr Ward was bought out by market infrastructure group FinClear which has also launched a new platform for unlisted businesses to raise capital, called FCX.
“I sent them down the path of getting a secondary licence market … they are still on that path … they still haven’t got their markets licence,” Mr Ward said.
“But by us having a guaranteed cash pool in the middle, we actually buy the shares, it looks and feels like a market but because we are not actually matching the buyer and the seller, we don’t need a markets licence, so we got very quickly licensed by ASIC.”
Mr Ward claimed the platform is more like an exchange than models like SecondQuarter Ventures – a secondary venture capital fund that invests in private companies – and PrimaryMarkets – a platform for listing trades in private companies without guaranteed liquidity.