
JPMorgan to trade shares of pre-IPO giants including SpaceX, Robinhood, Airbnb - caiobegotti
https://www.cnbc.com/2020/09/11/jpmorgan-trade-private-shares-of-mega-start-ups-including-spacex-robinhood-and-airbnb.html
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perlgeek
Stock trading is complicated because those companies aren't public yet, but
they aren't public (yet).

I think I recall Elon Musk saying that SpaceX isn't going to go public,
possibly because it's a very long-term endeavor, and his goal is to go to
Mars, not make huge profits.

So, there's clearly a problem there. Companies don't want to go public to
avoid the incentives of the public market, but they also want their stocks to
be traded.

One possible approach is the Long Term Stock Exchange which we've discussed a
few days ago. One of their goals is to provide liquidity to early employees
and other long-term shareholders without necessarily shifting the focus to the
quarterly numbers. I don't know how well they'll achieve that, but I'm really
curious.

What would be other solutions?

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mikorym
I'm not sure I buy any of these discussions, especially the "Long Term Stock
Exchange".

In a company, you have a board and you have shareholders. If you don't want
the mould of a public company, you create or keep it as a private company. In
a private company, you can do any of these employee stock options or buybacks
or long term things, much as you can do with a public company, if you wanted
to. The board and the shareholders have a similar sort of dynamic in both, but
I would say the board of a private company invites less scrutiny, or at least
less fully public scrutiny.

So what is the difference between a public company and a private company---in
the context of this discussion? The main difference is that in a private
company, especially if you didn't set up your shareholders agreement in a
friendly way, you can have deadlocks where shareholders can't sell their
stock.

This I think is what JPMorgan is targeting, and based on my experience, it's a
pretty clever segment of the market to try something, since, as the article
and I mention, private companies have inherent difficulties to trade stock
(especially if the shareholders are not fond of each other). The stock value
of private companies can be undervalued too, and this would mean that JPMorgan
would create additional cash out of thin air. Or rather, by analogy magically
unlock lost Bitcoin wallets.

Some examples of private companies: Carlsberg, Lidl, Aldi, Deloitte, PWC,
IKEA, Koch Industries.

What I find interesting is that this article about private companies was
posted after the, ehm, funny LTSE one (seriously, the London Stock Exchange is
LSE...) and it would arguably be the closest existing structure where you are
not bound by public company expectation, and in theory you could build a
rather charitable setup from a private company, much like the LTSE article's
prose likes to promise.

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abdullahkhalids
Is it possible for a company to split into a parent company and child company?
The child is publicly traded but the parent own 51% of child company's shares
so continue to have decision making power.

What are the pros and cons of this approach?

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WanderPanda
Is there a limit to a recursive structure of 51% holding companies? If not,
one entity could hold all the decision making power without basically owning
equity (in the limit)

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abdullahkhalids
Nice. You could even have a fractal structure. I dare a billionaire to make a
Mandelbrot set with a bunch of shell companies.

~~~
cschneid
Something like this was a minor plot point in Accellerando (book by Charles
Stross). IP being rapidly bought & sold between a network of related inter-
owned companies, to avoid ever holding it long enough to be sued or something.

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choppaface
Both Uber and Facebook traded higher on second market during the 6 months
prior to IPO, and then the share price fell after the first week or two.
Facebook I remember had deals closing at $45-$50 and then they priced at $38.

While diversifying might help, the greatest return with 1 year of purchase
might entail selling during the IPO pop... at least that held for Uber and
Facebook. If you buy into one of these notes, aren’t the shares likely held as
part of a 6 month lock-up? Or would JPM liquidate you as part of the IPO?

Wonder if we would see dark pools doing derivatives of these holdings (similar
to how credit swap contracts were trade during the financial crisis). That
would be the most likely place you could 10x or 100x an investment on a late-
stage company like Airbnb, and you might even convince people like Softbank to
play?

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curiousgal
> _ses dark pools_

I thought the point of dark pools is so you don't see what's being traded
inside.

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andylynch
Not exactly- dark pools print and report trades like exchanges, the difference
is that the order book isn’t displayed, i.e there’s less information about
live orders.

~~~
curiousgal
Interesting, thanks you.

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WanderPanda
The sheer amount of money looking for opportunities we have in this stage of
the long term cycle is really a pity for small / private investors. Not even
the worst companies need capital from the public markets...

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jt2190
> The market for trading private company stock is dominated mostly by boutique
> brokerages based on the West Coast with names like EquityZen, SharesPost and
> Forge.

> Berthe said he believes that New York-based JPMorgan is the first major Wall
> Street bank to create a team dedicated to trading private shares. People
> with knowledge of the operations of Goldman Sachs and Morgan Stanley said
> that while the firms don’t have dedicated teams, they have been facilitating
> trades in this market for years. In particular, Morgan Stanley last year
> acquired Solium, a leading manager of corporate stock plans, giving it
> access to a wide swath of start-up equity.

> Unlike shares in public companies like Microsoft, trading in private company
> stock is complicated and still mostly the domain of old-school voice
> trading, versus electronic exchanges that close transactions in seconds.
> Once a trade is negotiated, JPMorgan has to transfer legal ownership of
> contracts and get clearance from the start-up, a process that can take
> weeks.

~~~
jessriedel
SpaceX is listed on EquityZen, but no shares are available. I suspect there is
very low liquidity for most of these companies, a problem JPMorgan could
potentially reduce.

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OJFord
Doesn't really explain the mechanics - is JPM to pick pre-IPO companies it
expects to have a high volume of interest, and then take a commission for
selling & repurchasing (i.e. market-making) the shares OTC?

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Zenst
Yes the closest I could come up with a comparison would be penny stocks, as
popularised in the film - The Wolf of Wall street.

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IshKebab
You think SpaceX is a penny stock?

~~~
SahAssar
The point is that the mechanism is similar, not that the valuation is similar.

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sjg007
I mean this is just like in app currency backed by a token backed by a dollar.
Maybe it provides a fairer 409A.. maybe. It’s basically a second derivative.
Problem is you don’t see the function itself.

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animationwill
If I wanted to do this, are there certain fee-based lawyers that I can hire to
read the document? What should I look for?

By the SEC definition, I am a qualified investor but this would be the first
such investment I'd make and I don't want to mess up

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gorgoiler
This feels weird. Almost like it’s a _rule of law_ issue that’s at stake when
regulations and regulators get left behind.

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SpicyLemonZest
I guess it's not obvious to me that regulations are needed here. JP Morgan and
its clients are sophisticated investors, so I'm not sure they need Congress's
help to protect themselves from SpaceX and Robinhood.

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alex_young
Won’t this force them to go public? Too many shareholders?

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crmd
You can get around that with a performance-linked note. The bank owns the
equity and issues a note whose value is explicitly linked to the valuation of
the underlying stock.

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vlovich123
I feel like that’s a distinction created just to let bankers skirt rules. Like
what Carl Icahn and Soros did which by any sane rule book would be insanely
illegal.

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globular-toast
You are now qualified to be a banker.

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ferros
My other question is will this make pre-IPO sales fairer?

If historically sales have been over the phone there is the chance people are
getting deals based on relationships or priority access.

You could make the case that this will make the process more transparent.

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lvs
Perfect for the investor who doesn't fret about pesky things like financial
filings.

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tehabe
I wonder if this is a strategy to make them go public if they want or not.

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ferros
I wonder if this will make it easier to build up larger pre-IPO positions.

~~~
WrtCdEvrydy
That's a good question, if it's a pre-IPO, how did they get shares? Are you
just buying/selling paper versions of the stock and they'll buy your shares an
IPO goes live?

~~~
ivalm
Probably JPMorgan actually owns shares in a fund. You buy notes that have the
appropriate fractional value of the fund. Presumably they will exchange notes
for shares post IPO.

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switch11
Isn't there a rule that more than a certain number of share holders -> Must go
public

This:

alex_young 14 minutes ago [–]

Won’t this force them to go public? Too many shareholders? reply

 __ __ __ __ __ __ __

How can they skirt around these rules?

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SMAAART
Not exactly. Once a company have >500 shareholders they have to do some
periodic SEC filings similar to publicly traded companies, but their share are
not publicly traded, so they are not "public" companies.

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vmception
Its 2,000 now

And of course people typically then list their shares since they have all the
same headaches of reporting, but also get the benefits of liquidity when
listed

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j_crick
How this is not a set of ICO-like schemes, flavored with that particular 2017
style, is kinda beyond me.

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tempsy
it just sounds like a competitor to sharespost or forge or any other secondary
exchange? what’s different

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shmerl
What does it mean trading private shares? Isn't it the property of public
companies?

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destitude
Employees of companies that are not public but who are given stock options
have no way to easily liquidate those options. This allows those employees to
get some money NOW instead of hoping someday the company goes public or is
bought out (which in most cases will never happen). For the buyer this allows
them to get in even earlier. This is complicated of course by the fact they
are not public companies and requires a lot of extra paperwork.

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shmerl
I see. But anyone can buy them in practice?

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MPSimmons
They're generally sold to "institutional investors" (i.e. VC, or other
companies that buy chunks of millions of dollars, with agreements limiting who
they can sell to, and under what conditions)

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xwdv
SpaceX is the one to get. It’s the next Tesla once starlink is fully
operational.

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thoughtstheseus
They’ve already announced an intention to spinoff that business line.

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Answerawake
Was there a particular reason?

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perlgeek
Being an ISP and being a launch company are very different business models,
different regulations apply, different operational expertise is required and
so on.

If you're focused on getting to humans to Mars, running an ISP is a
distraction, even if it comes with good cash flow. If you're running an ISP,
getting to Mars is a distraction. It's better to separate thees two aspects
into separate companies.

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sonicggg
You can already invest in pre-IPO companies, at least indirectly. Some
holdings offer exposure to them, but you won't get to be very picky.

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etaioinshrdlu
Can you point out a few?

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jimmySixDOF
eQuityzen is one

They offer the holder of any pre ipo shares a chance to monetize early, though
I have no idea how they smooth out all the various terms and conditions
involved

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echelon
Is this legit? What are the risks here?

I'm off to buy some SpaceX if this is a legitimate way of doing so.

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ericd
It’s subject to share availability and purchase minimums, in addition to the
accreditation requirement.

The availability of SpaceX stock is not great afaict, the demand is incredibly
high. It’s to the point where some of the platforms are charging carry in
addition to their normal upfront fee, for a fund that invests in just SpaceX,
because they can.

But yeah, EquityZen is a solid platform, and their minimums tend to be a lot
more reasonable than some of the others ($10-20k vs 100k+)

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javert
Can you please tell me which platforms have SpaceX available? I'm already on
EquityZen and it definitely does not. Thanks.

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ericd
You might try contacting a broker at SharesPost. But yeah, their last round
was extremely oversubscribed.

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javert
Thanks! I will look into that.

