Private Shares Trading Sees Barbell Effect: Late-Stage and AI Ventures in High Demand

From the surge in interest in late-stage companies and AI ventures to the fluctuating fundraising landscape, the private shares trading market is experiencing a unique set of dynamics. In this Q&A, Tony Frascotti, head of private shares trading at William Blair, provides a comprehensive overview of the key trends and challenges driving the market, shedding light on the concentrated focus of buyers in private markets, and the evolving investor priorities toward profitability and platform plays.

How would you describe the current macroeconomic environment for private shares trading?

Tony Frascotti: It’s pretty barbelled right now. We’re seeing a few themes. First, there’s a flood of interest in late-stage or ultra-late-stage companies, driven by recent mega rounds and clearing house events. Also, there’s significant interest in venture-backed AI companies, as they’re a newer category without a defined comp group. Additionally, companies are more open to secondaries, whether they are company-led, independent or a component of a primary funding round.

How are the prevailing market conditions affecting the fundraising landscape? What are your expectations regarding improvements or growth?

Fundraising is massively down on a two-year trailing basis but up year-over-year. It’s improving, but it’s nowhere close to where it was. As capital market environments continue to improve, we’ll likely see further upstream fundraising. For a steady state, we need investors to realize some distributions to paid-in capital (DPI) on their early funds and get more exits.

Where are buyers spending their time in the private markets?

It’s pretty concentrated. Trades are crowded, and there’s been an uptick in primary paper the last couple of weeks, but those primaries have been very tightly held by major investors. This causes other prospective buyers to look toward secondaries as a way to gain exposure. While primary shares have been tightly held, we find them in earlier-stage companies—especially at a time when profitability is more important than it is for later-stage companies.

What aspects of private shares are investors interested in?

While company growth is essential, profitability is increasingly the focus. It’s easy for a company to grow from $50 million to $100 million in annual recurring revenue (ARR), but maintaining that growth rate is crucial. Valuations have come down significantly, and people are thinking more about platform plays rather than niche, single technology plays. Liquidation preference is much more important now.

How does the interest vary between early- and late-stage companies?

There’s less availability in earlier-stage companies. Where we do see early-stage interest, it’s dominated by major investors, and people can get boxed out. Late-stage companies have more interest because they’re bigger, more available, and more recognized, and have more established market share.

What’s the current average discount on private company shares?

It’s tough to generalize because companies vary so much. Some late-stage ones are trading at par, while others, depending on their stage, may have discounts ranging from 20% to 50%. There’s also a slew of companies trading at 70%-90% discounts. It’s very sector- and issuer-dependent.

Are companies becoming more flexible with their private share policies? How do potential restrictions affect trade?

Most companies want the ability to restrict transfers using bylaw restrictions. However, we’re seeing some companies becoming more open to transfers. Late-stage companies are more restrictive as they approach exit, while midstage ones are less restrictive and more open to transactions. Structured liquidity programs are becoming more common. Less restrictive policies help with employee retention by allowing liquidity, providing more patient capital, and enabling more natural market price realization. More restrictive policies are often due to major investors wanting to buy all open stock and concerns about internal valuation impacts. Allowing more open trading can reduce post-lock-up volatility and prevent forward contracts that can be harmful.

What challenges do venture capital firms (VCs) face in the private markets today?

The main challenges are DPI and fundraising. Many new VCs are on their second or third vintage fund but haven’t had many exits to return capital to shareholders. They look to us to help realize DPI, liquidate positions, and return capital, making fundraising for their next fund easier.

The private shares trading team facilitates transactions in privately held securities, with a focus on shares of venture-backed companies. Generally, these companies are valued at $500 million or above (series B or later).

The team represents both buyers and sellers, handling pricing negotiations between parties and issuer approval for ownership transfer.

Our team works diligently to provide secondary liquidity for longtime shareholders of venture-backed companies and to help asset managers build positions in these tightly held companies outside the traditional fundraising environment.

Please submit an inquiry for the private shares trading team for additional information.