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We present individual correlations and findings on the following topics. These serve as an invitation to better understand the secondary market for shares in startups and, based on this, to engage in the public discussion.
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First relevant subjects
Choose your area of interest – from market to a wider outlook
Market - Significantly increase market volume with high yields and halved maturities
High returns in the VC market - so far with long maturities
Half maturities could significantly increase market volume
How can significantly higher financing volumes be achieved in the VC market? Duration is the key to the solution.
According to BVK, the venture market enjoys double-digit returns across the board. As a result, startup submarkets are becoming increasingly attractive to investors and large investors.
From the startup scene, one can always hear the call for higher government sums for the startup market. The solution is so close at hand.
It is also imperative to ask about the previous maturities of startup investments and their influence on the market volume.
The currently very long investment periods slow down the re-entry of business angels into new startups - with considerable consequences for the money flowing into startups each year.
It often takes eight, ten or more years from the initial investment to the exit.
If, in the interest of all, maturities could be cut in half through a secondary market used by all, annual startup investments would double.
Business angels can thus reinvest the money raised in the secondary market much more quickly.
⇒ High yields - almost always in double digits
Double-digit returns are normal in the venture sector: Link to BVK – Yields in the double-digit range
⇒ High state share in startup financing
46% of Startups receive government support or funding. Relevant data on Statista
⇒ Business angel investments have long terms of several years.
Long terms not desirable for business angels: Link – Interview with Ute Günther, BAND
Valuation - Purchase price determinations with adjustments for different preferences
Purchase price determination in the secondary market
Rational and irrational adjustments - within the framework of the information economy
How close is one's own subjectively correct value to the market price? Which factors can and should be taken into account for correction?
The field for valuing shares in startups and companies is huge.
What all methods have in common is the reference - or at least the comparison - to standard market data. These are market data on interest rates, common industry ratios, but also data on all other individually considered relevant influencing variables.
In addition to the strategic influences, the rationally calculable monopoly or synergy hypothesis, which are important in the case of
company acquisitions, subjective factors relating to risk assessment and the weighting of information always play a role in startup valuations.
Here, due diligence must combine the subjective with the objectively measurable factors. This reconciliation can rarely be general and must therefore best be done individually.
In the case of third-party comparisons of company values, the question remains as to the extent to which the market participants in the reference transaction have applied similar preferences in measuring the underlying data as the buyer in the secondary transaction.
Adjustments are to be estimated at least roughly.
⇒ Due diligence - a discussion about the pro and cons of DD´s trustworthness
For moredetails we like to refer you to harvard business review – the new trustworthness
⇒ Key factors influencing the valuation of startups
An introduction to several factors you may find at the following Accountany Cloud blog about valuation of Startups
Secondary market - 90-day rule solves principal-agent problem
Third-party market prices for solving the principal-agent problem
The 90-day rule as a solid basis - creating an indirect transparency improvement
When do adjustments to an existing third-party assessment become necessary? And when should adjustments be made.
Principle agent theory has already been able to widely explain non-functioning in negotiations in the middle of the last century.
The theory is based on the asymmetry of information. Between buyer and seller, this can basically only be eliminated or reduced as a problem by equal transparency to both partners.
The problem can be reduced 'immediately' by making the underlying facts transparent to both parties.
The 'indirect' transparency is different, in which an indirect transparency relevant to the result of the valuation takes place with the 90- day rule.
Indirectly, the buyer weights the base data as it was in the third-party valuation.
The 90-day rule indirectly solves the information asymmetry. The buyer follows the lead investor of the current round in its valuation logic.
Adjustments to the logic of the lead investors and thus to the valuation should only be made if significant deviations are expected.
⇒ 90-day rule indirectly resolves the asymmetry
90-day rule reduces information asymmetry in valuation of shares in companies: The 90-day-rule on the homepage of Allventures.exchange
⇒ Principle agent theory based on asymmetry
Information asymmetry as the core of principle agent theory: Wikipedia – Principle Agent Theory
⇒ Consider information economics in the solution
Information asymmetries: Observe marginal costs: Wikipedia – Information-Costs
Post-closing advice – A new directory for a broad field of expertise
Post-Closing is a broad field of competence
Securing growth with high competence - the new directory
What are the important issues after a financing round? For whom is what important and what is relevant for success?
Post-closing is often understood far too narrowly. Many people only understand the legal aspects of contract fulfillment and renegotiation in this context.
However, this ignores many things that are of much greater importance in the phase after a financing round and that have the company's further success in mind.
A broad definition of post-closing includes everything that can generally be subsumed under growth and the steps and measures necessary for startup success.
For all those who do not want to sell after a financing round, for the founders of the startup and also the newly added shareholders, the economic aspects of a future business success are important. This in particular must be the focus of attention in the first years after the closing.
The range of topics is wide: From strategic and operational to technical, organizational and sales- or marketing-oriented topics, a well- functioning investor relations to the planning of the next financing round or even the preparation of an upcoming IPO, the field is broad and diverse.
⇒ Postclosing-Directory – there you will find the best advisors
With a content-based directory, an important guide is being created. Initiated by us, a new website is being created for this purpose at: www.postclosing.directory
⇒ Up to now often 'only' legal contract issues
Post-Closing - the most important legal issues. More for understanding in: Dictionary from lawinsider
Contractual clauses - Hurdle or not?
The clauses in participation agreements - with or without consideration
Often sales are not prevented
When are special clauses relevant for the secondary deal? For whom do they work and when do they tend not to work.
Clauses regulating the sale of shares in startups can be found in articles of association and or other supplementary agreements of the shareholders. Clauses must be differentiated into two categories with respect to the intended secondary transaction.
There are clauses that regulate the possibility of whether and how co-shareholders can enter into a secondary transaction, for example through rights of first refusal or co-sale rights or obligations.
In addition, there are genuine veto rights which link the secondary sale of a share to defined conditions.
The special feature of these rights is that the co-shareholders generally do not receive any consideration for exercising the veto right.
Pre-emption and co-sale rights, on the other hand, are to be classified as rather weak hurdles compared to the veto right due to the necessary consideration by the co-shareholders.
As a result, objective arguments against secondary sales are very rare.
⇒ This is how the special clauses in participation agreements work
Some specific sample clauses for general information in lawinsider
⇒ The settlement of pre-emption
A historical classification in how to apply those in contracts. Please go to vestd.com
⇒ The effectiveness of veto rights
An interesting view on meaning and the importance of veto rights. Explained in managementstudyguide
Outlook - New old ways will bring shorter maturities in the future
New old ways to shorten terms of startup-investments
What was better in the past can be the future - a renaissance of the tried and true
What was better in the past can be the
future - a renaissance of the tried and true.
Investors in startups receive shares or they
give convertible loans so that they can
exchange them for shares. Investments are
directed towards the transfer of - almost
always GmbH shares. This can and must not
be the best way.
In the 'old days', the first thing people thought
of was KG shares. One did not want any say,
one looked for the possible repayment of the
shares. Today, the allocation of tax disproportionate loss which is often possible for limited
partnership shares, would be added as an
Profit participation loans were also of
considerable importance in growing companies. Thus, profit generation could be achieved with long-term repayability.
As startups reach the break-even point late, revenue-based profit participation income becomes relevant.
Tokenization of shares in Startups will not penetrate the market, as transaction volumes are low and also press news at startups are too rare for a daily trading business.
The KG and also the profit participation loans will experience a renaissance in a new form.
⇒ Disproportional taxation and loss allocation
For example, initial losses end up with the investor, even if profits are later distributed differently.Unternehmenskompositionen explains the 'disproportionate profit distribution
⇒ Instead of interest: loans with profit sharing and revenue-based returns
It is called: Revenue-based financing – well explained on Wikipedia
⇒ The tokenization of assets
The steps in detail: Tokenisierung – what is it, (Biallo)