I have been involved with online startup companies for over 10 years now. An interesting issue is how you actually sell your company or otherwise become liquid meaning obtain cash in your pocket, the business owner. Obviously there is salary, bonuses, profit, and other cash or cash equivalents that you would receive in any company, however what about the valuation. Is there any way to turn part of your ownership in a company into cash?
You are probably familiar with receiving investment in your company. A common form of investment is selling stock in a company with a price per share. The investors expect that money to be put into a bank account and used to further grow the business. Once you have taken investment you now have other stock holders and typically a board that can control what the company does and does not do. Here is a possible scenario.
For sake of argument let us assume your startup took investment and sold 40% of the company for a $500,000 dollar investment two years ago and you have the remaining 60%. You are marginally profitable and based on different valuation methods you and your board believe the company to now be worth $4,000,000. Therefore the value of the investors stock is $1,600,000 and yours is $2,400,000.
Board Has Control of Private Company Stock
The board has control and decides they do not want to take additional investment and they do not want to sell the company, they cannot go public in the U.S. due to both the economy and the fact that over regulation in the U.S. makes it too difficult and cost prohibitive, they do not want to go oversees just yet to go public, nor do they intend to give you a raise.
You started the company and were told you needed to have “skin in the game” so your salary is half what the going market would be for someone with your skill and abilities, you have had your first child and you and your wife, or husband, would like to buy your first home. The company could loan you money but if your stock is worth $2,400,000 why can you not just cash in $100,000 pay taxes on it and use the remainder for a down payment?
No Market for Private Company Stock
Remember this is a private company and this stock cannot be sold on a stock market. A stock market makes the market and brings buyers and sellers together. However there is no private market for stock like yours. Your stock holders agreement says that you can sell your stock but you obviously have to find a buyer, and there are restrictions on pricing and right of first refusal by your current investors.
If you could only find a market for the stock. Your current investors are not taking new investment, as they claim they do not want to dilute their position. If you could just find an investor and sell them a portion of your stock then the current investors are not diluted and you now have the money you need.
Thank you gTrade
gTrade represents the next generation securities exchange (in their words). Essentially their platform allows everyday investors to purchase shares in companies that have not yet listed publicly. You can sell stock in your company and you can invest in startups.
“As opposed to traditional venture capital, gTrade brings a start-up company to the collective attention of millions of Internet users, letting the people decide in a start-up’s future by investing their own money.”
As they point out, liquidity is difficult (turning the stock into cash through IPO or other sales event), and raising money can be a lengthy time consuming process (as I know all too well).
Take a look at their site. They are currently in private beta. The video below describes their technology as well as screen shots.