Photographer: Michael Nagle/Bloomberg
(Bloomberg) — A wave of successful initial public offerings is driving a surge of interest in private companies, as investors clamor for exposure to artificial intelligence-related firms before they hit public markets.
Platforms offering accredited investors the chance to invest in pre-IPO names are fielding more inquiries and executing more trades after AI bets such as cloud computing firm CoreWeave Inc. and design software company Figma Inc. delivered outsize gains soon after listing.
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Trading volume on the private secondary market run by EquityZen Securities more than doubled in the third quarter versus a year ago, and the total value of buy orders – an indication of interest that doesn’t necessarily result in an executed trade — on Rainmaker Securities’ platform in the third quarter rose more than three times from the first quarter.
The actual volume of shares exchanged on platforms where early employees and venture funds sell stakes is far smaller than the amount that changes hands on a single day in the public markets. Still, the private activity reflects the growing desire among investors to capture some of the gains in IPOs that are going to early backers.
“Investors have done everything they can to play the AI space in the public markets, but really most of the innovation, or a lot of the innovation, is happening in the private markets,” said Greg Martin, managing director at Rainmaker Securities.
The demand for private companies comes as their ranks are growing, and public firms are shrinking. The number of companies listed in the US has halved since 2000, while the number of private, venture capital-backed companies has increased 25 times, according to research from Bank of America Corp. The value of private capital assets grew to $22 trillion in 2024, more than doubling since 2012, a report from strategists led by Haim Israel showed.
Just as in public markets, AI-related names are among the most in-demand on EquityZen’s platform. The company says investor appetite is soaring for both AI-native startups — including Anthropic, Cursor, Glean Technologies and Perplexity AI — and more established software as a service firms such as Tanium, Addepar and Reltio that are embedding AI into their offerings.
Data from Forge Global Holdings Inc., a marketplace for private company shares which is mainly focused on tech companies, shows AI-related firms account for about a third of private stock trading. Other sectors in demand include fintech, enterprise software and defense tech.
“When we see a buoyant equity market, and more importantly a buoyant IPO market, we tend to see bigger demand in the secondary market,” said Rainmaker’s Martin.
There’s growing demand on EquityZen’s platform for smaller firms, with trading volumes at companies valued at less than $5 billion hitting the highest level since 2023.
“That’s partially guided by the fact that if those companies can grow, they might be able to go public sooner than maybe people would envision,” according to Phil Haslett, EquityZen’s co-founder and chief strategy officer.
An IPO was long viewed as the main route giving startup backers the liquidity to realize gains more easily than in privately negotiated stake sales. With the growing number of markets for pre-IPO shares, the perception of illiquidity around private shares may be receding.
“If those investors are now looking at selling, they really don’t need an IPO to sell. And that’s what’s driving some of the volume now,” said Kelly Rodriques, CEO of Forge.
–With assistance from Alexandra Semenova.
(Updates with EquityZen small-valuation deal volume in tenth paragraph. An earlier version of this article corrected the attribution of Rainmaker executive quotes in fifth and ninth paragraphs.)
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