Buying shares in public companies is easy these days, and has been since the advent of sites like E-Trade and Schwab.com.
But that’s not the case when it comes to investing in a privately held company, whether it’s a hot tech start-up or century-old manufacturing conglomerate. That process still requires physical paperwork, lawyers to negotiate terms and a lot of emails to connect willing investors with companies.
A startup called eShares is working to change this. EShares’ software makes it as easy to issue, buy or sell equity stakes in start-ups online as it is to trade stock.
Founder Henry Ward told CNBC, “We still live in a feudal economy, where ‘land-owners’ have stock in firms and ‘serfs,’ or workers, don’t. We are in the business of creating more land-owners. We want more people to have ownership in productive firms.”
Among other things, eShares lets company founders issue share certificates to angel and venture investors, employees, and others who qualify for stock options.
Through a centralized dashboard, issuers can keep track of who owns what, the timing and pricing of shares issued and whether or not anyone current equity stakeholders are willing to sell their shares right now.
Venture firms also use eShares to manage their portfolios. They can easily see what stakes they have in companies and what those shares are worth now, and then use eShares to create financial reports for their limited partners (the people or institutions whose money they manage). The company has 6,000 customers, including well-known tech start-ups like MongoDB and Slack, and venture firms like Menlo Ventures and Union Square Ventures.
If eShares succeeds, it will give startup founders a way to keep companies private long-term, without harming early backers or employees who want to exercise (and make money from) their shares.
So will it make IPOs obsolete? Probably not, according to one investor in the start-up, Menlo Ventures’ Matt Murphy. “But this is an alternative to that kind of mega-offering.”
While VCs can’t totally dictate what business software that their portfolio companies use, Murphy noted, many have recommended eShares for cap table management to all of the companies they’ve backed.
EShares recently closed $42 million in a series C round of funding led by Menlo and Social Capital, and a long list of other investors including Slack founder Stewart Butterfield and Golden State Warriors basketball player Andre Iguodala.
Murphy said he expects eShares to use its funding to market its software internationally, and to develop features and functionality for public companies. Murphy said, “Eventually, eShares could become the infrastructure that connects all asset issuers and owners, globally, including public companies.”
Source : cnbc.com
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