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Today, I made a purchase over the internet that was nearly impossible to do in the past; in fact, most people still think it’s impossible. I bought stock in a well-known private unicorn.
Of course, I’m talking about the Silicon Valley-type of unicorn, the startup that rises to a billion dollars in capital value. Most of these companies eventually go public, like Microsoft, Amazon, Apple and all the rest, and then the general public can buy stock in them through brokerage accounts.
However, many more startups, especially tech startups, are staying private for longer periods of time, as they require tremendous injections of cash over their extended phases of growth.
During the funding period, the companies scale up and their values multiply many times, along with an increase in business. So why should the Venture Capitalists who own them go public early and give up the terrific growth at the rates at which they are performing?
Nevertheless, these companies do distribute stock to some well-connected insiders, and sometimes those insiders like to (or heaven forbid need to) sell some of their precious private stock.
Who are these lucky folks, you wonder? There are a variety of profiles. There could be a key employee who receives a stock option and then the IRS taxes her on the value of the stock she hasn’t yet received. Now she has to come up with some serious cash for the IRS. (Does this really happen? Oh yes, there are a lot of paper millionaires who don’t make enough money to pay their taxes.)
Or there could be an early investor in one of these unicorns who no longer worships the company he received the sweat equity in because they fired him. (Yes, this happens too.)
There are also early stage investors who simply die—what to do with Grandpa’s unicorn stock when the inheritance tax bill is all tallied up and the legal fees are gobbling up his free cash?
Now there is a company that specializes in selling stock in private companies. If you want to know where and how to buy these types of stock, go to Forge (formerly Equidate) and see for yourself. You’ll notice recognizable names of pre-IPO technology companies specializing in ride hailing services, on-demand hotel rooms, human genome mapping and space travel. Most people think you can’t buy stock in these companies, but they are wrong.
In addition to the unicorns, there are hundreds of small private companies, many of which you’ll recognize but won’t be able to find on your E-Trade account. It’s awesome to finally be able to get in on these companies before they go public, much like the VC’s and investment insiders do.
You will also find the latest news on these types of companies, as culled from publications like the MIT Technology Review, Business Insider, Forbes and Recode. Actually, a visit to their site is an education in what’s really going on in the new economy.
It’s hard to find as many authoritative articles on these companies in one place. I visit the site at least once a week to learn what’s going on and what’s new in that space.
You can sign up for a Forge account for free. Then you browse your stock choices, follow the companies you’re really interested in and keep up to date with their financing series, valuations, offerings and much more. This is information you’ll have a real hard time finding anywhere else.
Oh, and just in case you’re downsizing your portfolio in order to buy that $20 million riverside cabin in Healdsburg, you can also sell your private company stock on Forge. Check it out.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.