Sohail Prasad, an entrepreneur, launched a fund in March called the Destiny Tech100 (DXYZ-N). The fund owns shares in hot tech startups like the payments firm Stripe, the rocket maker SpaceX and the artificial intelligence company OpenAI.
Few people get the chance to invest in these privately held companies since their shares are not openly traded. Prasad’s intention with Destiny was to let the rest of the world get a piece of them through his fund.
But soon after Destiny debuted, two tech startups — Stripe and Plaid, a banking service — said the fund did not legally own their shares. A competitor criticized Destiny as “too good to be true.” Robinhood, a stock trading app, stopped letting investors buy into the fund, saying it had been added to its app by mistake.
Prasad was not surprised by the uproar. It was a sign of “a true cultural movement in which DXYZ is at the forefront,” he said, referring to Destiny by its ticker symbol.
Tensions over the shadowy and often enigmatic market of private company stocks have reached a boiling point, just as the buying and selling of such shares has grown bigger than ever. At its center is an age-old debate: Should everyone have access to the riches and risks of investing in Silicon Valley startups?
The market for private company stocks, also known as the secondary market, is on track to hit a record $64 billion this year, up 40% from last year, according to Sacra, a research firm focused on private investments. A decade ago, the private company stock market was roughly $16 billion, according to Industry Ventures, a firm focused on secondary transactions.
The activity has increasingly rattled some startups, which have long resisted letting their shares freely change hands. The more people who own their stock, the more unwieldy the number of shareholders, which can lead to difficulties complying with securities laws, among other complications. While some startups are allowing some trading of their stock, other trades are happening without permission.
“We’re coming to a point where something has to give,” said Noel Moldvai, CEO of Augment, a marketplace for private startup shares.
Among the online marketplaces for buying and selling private company stocks is Hiive, which started in 2022. It is currently offering customers shares in Anthropic, a hot artificial intelligence startup.
Hiive bought $50 million of Anthropic stock and is letting investors buy chunks as small as $25,000, said Sim Desai, the company’s CEO. The site oversees an average of around $20 million in deals a week.
At Augment, which opened last year, investors interested in owning shares in Stripe can peruse four “sell orders,” or people trying to sell Stripe shares. Augment did more than $20 million of transactions in March, Moldvai said.
Some investment funds — including Stack Capital, Fundrise, Private Shares Fund and ARK Invest’s ARK Venture Fund — are also pitching the ability to own a piece of private startups. Destiny, which trades on the New York Stock Exchange and contains shares in 23 startups worth around $53 million, is one of a few options that are publicly traded.
The activity has alarmed some startups. Stripe, valued at $65 billion in the private market, has issued a strongly worded statement about offers to buy its stock. Any offer to invest in its shares that does not come from the company is “very likely a scam,” it said. Stripe has encouraged shareholders to report such offers to law enforcement.
Stripe and Anthropic declined to comment for this article.
Even so, people remain eager to get shares of the startups, said Jeff Parks, CEO of Stack Capital, which offers investors access to companies including SpaceX and Canva, a design software startup.
“You want to be on the golf course like, ‘Hey, I own some SpaceX,’” he said.
Private stock sales go back more than a decade — and have always felt a bit like the Wild West.
Before Facebook went public in 2012, its privately held shares changed hands on marketplaces such as SharesPost and SecondMarket. The Securities and Exchange Commission warned that such marketplaces were risky “for even savvy investors” and fined SharesPost $80,000 for not registering as a broker-dealer.
In the aftermath, startups tried restricting sales of their stock. But middlemen including Forge Global, then known as Equidate, found ways around it. They popularized “forward contracts,” which paid startup employees cash if they pledged to transfer their company shares to an investor in the future.
Forward contracts caught on at startups like Airbnb. When Airbnb publicly listed its stock in 2020, Forge oversaw the transfer of $475 million of shares pledged by the vacation rental site’s employees to more than 100 investors.
“It was an administrative nightmare,” said Kelly Rodriques, Forge’s CEO. Forge has since built technology to handle that process and no longer strikes forward contracts.
Some companies that have stayed private the longest, including Stripe, which is 14 years old, and SpaceX, which is 22 years old, have begun offering regular opportunities for employees to sell a portion of their stock at a set price.
Even though companies historically resisted the trading of their private stock, more are coming around to the idea, Rodriques said.
“The market has never been more accepting of secondary liquidity than it is now,” he said.