The secondary market for startup equity is booming. And now, so are the lawsuits for the companies brokering deals.
Driving the news: Vancouver-based startup Hiive, which functions as a quasi-stock market for investing in privately-owned companies, is being sued by Nasdaq Private Market (NPM) for allegedly infringing on its patent, per the Globe and Mail.
Both businesses offer a platform to trade and sell shares in private companies, giving early employees a chance to cash in on their equity outside of official sales.
The patent infringement case, which Hiive has said is completely without merit, could force the Canadian company to stop operating in the U.S. if NPM wins.
Why it matters: Hiive has capitalized on a booming market for secondary share sales, particularly for private tech companies that are putting off going public. The Vancouver startup launched its marketplace four years ago, and it’s already processed US$4 billion worth of transactions.
Outside of platforms like Hiive and NPM, demand for these kinds of deals has created a lucrative (and fraud-riddled) grey market. One X user bragged recently that brokering an Anthropic secondary share deal made them more money than they did in all of their 20s.
Anthropic has virtually banned employees from selling shares on the secondary market, including on Hiive. Earlier this month, the company announced that any attempt to sell shares on these platforms would be voided.
Our take: Silicon Valley and Wall Street have had many chances to pour money into these AI giants early on, but individual investors have been largely shut out of their eye-popping returns. One venture capitalist toldThe New Yorker that by the time these tech giants go public, the valuations will have nowhere to go but down. “When these large companies go public at $1 trillion valuations, retail [investors] are going to get hosed.”—LA
