Overview
As some of the world’s most innovative companies opt to stay private for longer, many employees and early shareholders are looking to access liquidity for the equity they hold. However, compared with publicly traded securities listed on the NYSE or Nasdaq stock exchanges, transacting in pre-IPO company shares is often more complex, requiring significantly more time to execute.
This guide answers key questions, outlines a step-by-step guide to selling your shares on P2P Shares, and addresses how a majority of shares are traded in our marketplace. Please note that because many private companies have idiosyncratic rules and varying levels of sophistication in trading shares, you may encounter additional steps or other requirements in selling your shares.
Weighing your options
There are two main ways to sell your private shares on P2P Shares:
1. In a direct transaction, after agreeing to terms (notably price and size), you would sell your shares to an accredited investor on P2P Shares.
2. In a single-issuer SPV offering, you begin by defining the key terms of the offering—your desired price per share, the total size of the fund and the length of the subscription window, and we structure the vehicle and work on sourcing demand.
Through this SPV, P2P Shares aggregates capital from multiple investors into the fund, avoiding the complexity of having to coordinate multiple individual trades. The result is that you get to sell your shares to a single vehicle.
When the subscription period closes and investors’ funds are collected into the P2P Shares fund, P2P Shares then notifies the company of a single transaction. This can streamline the process and allow you to receive the proceeds from all the different investors in the fund at the same time.
Option 1: Sell directly to a buyer through a direct transaction
Direct sales involve several steps, the longest being the right of first refusal (ROFR). This involves the company or early investors having the legal right to purchase the shares being offered for sale ahead of an external buyer for the same terms you have agreed to. There is generally a timeframe within which a ROFR must be exercised which can delay the timeline to close a transaction so it is important to understand these procedures. After a buyer and seller have matched, escrow takes approximately 45 days to finalize.
Option 2: Sell through a P2P Shares SPV transaction
In an SPV offering, there is a similar timeline and process to that of a direct transaction. P2P Shares fund collects funds from participating investors prior to committing to an investment. Once terms are agreed and funds are collected the company rofr process would begin .
The selling process
Below is the outline of the steps involved in the selling process. Unless noted, these steps are applicable to both a direct sale of shares and sales through a P2P Shares SPV.
Fees
Unlike other pre-IPO marketplaces, P2P Shares is not a broker-dealer and does not charge commissions. We match sellers and buyers on our platform and charge a technology escrow fee that ranges from 0.25% -0.5% representing a 90% savings compared to other platforms.
Seller Minimums
For sellers, minimums vary depending on market dynamics and other factors. The majority of offers to sell start around $100,000. Offers under $100,000 sometimes need to be bundled with other sellers’ shares to find liquidity.
Ultimately, minimums are determined by investor demand, transaction cost and company policies. Please note that the value of your shares may vary over time as a result of shifts in market dynamics, new funding rounds and other company developments.
Selling private company shares: A step-by-step guide
Step 1: Register for P2P Shares
To begin the selling process, you first need to create an account on P2P Shares. P2P Shares does not charge a fee to create an account or to access P2P Shares and join our global network of buyers and sellers. P2P Shares only get paid when there is a match and the transaction enters escrow.
The onboarding steps are key components of transacting on P2P Shares, as all buyers and sellers must be credentialed in order to complete a transaction. This means that the data you see on P2P Shares has been submitted by verified users, helping ensure the quality and accuracy of data and a higher likelihood of completing transactions.
Step 2: Add your holdings and prepare to validate ownership
After you register as a seller on P2P Shares, the first step is to tell us what you own. Your holdings are the types of private shares or options you hold in a company. You can enter these during registration, and afterwards you can see them in the Holdings section of your dashboard.
It’s important to note that adding your holdings is not the same as submitting a sell order. When you’re ready to sell, simply click the Sell button and you will be prompted to enter the details of your order and upload your proof of ownership. Providing this proof helps potential buyers feel confident that you truly own the underlying shares.
When we request proof of ownership, it could mean confirming that you are the legal owner, an executor of an estate, the control party of a trust, the firm’s authorized signatory, or another authorized representative of the shares.
Step 3: Determine your selling method: Direct or sell through a P2P Shares SPV transaction
At this stage, you have the option of selling your shares either directly to a buyer or place an offer to sell through a P2P Shares SPV.
Direct: If you choose to sell your shares directly, you have the potential to be matched to a buyer(s), which provides the option to actively negotiate terms.
P2P Shares SPV transactions: If you sell your shares to a P2P Shares SPV, you set the price, size and subscription window—and remain committed to those terms until the transaction closes. Timelines and outcomes vary by pricing, company policies, and the fund.
Step 4: Research and submit an asking price
Researching a potential share price
At this stage, you’ll need to determine your desired share price. Like all transactions, buyers and sellers of private shares need to agree on a price to proceed. Again, unlike the public market, which often offers near-instant prices on securities, pricing of pre-IPO company shares is more complex. P2P Shares offers a broad range of data to help you determine the price you’re willing to accept for your shares.
When evaluating market conditions to place an offer, here are some questions to consider:
- What is the lowest current asking price on P2P Shares?
- What is the discount or premium from the company’s last funding round or other liquidity event like a company-sponsored tender offer?
- What is the last-matched price for a closed transaction, and when was it?
- Based on recent transactions, is the company’s price moving upward, downward or staying relatively flat?
- How often has the company’s shares traded recently and at what price range(s)?
Option 1: Respond to a buyer’s bid by accepting it or negotiating their terms
You can engage with any active bid listed in the market — whether the trade is direct or facilitated through a P2P Shares fund. If the listed terms (price and quantity) work for you, you may accept the bid and move forward with the transaction. If not, you have the option to propose alternate terms (e.g., a lower price or different quantity), initiating a negotiation with the buyer.
Option 2: Submitting an offer to sell
If you do not see a current active bid or one that matches your desired price or quantity, you can submit a new asking price. The active market table lists recent bid and ask information, including pricing and share quantities, among other data points. You can use the active market table to see other ask prices and to help set your ask price. If there is a P2P Shares fund available for the Company in which you own shares, you will have the option to sell your shares to the fund. The active market table may indicate that fund units are available to trade, including price information.
Once you submit your ask price, it will show up in the active market table, which buyers (either direct or through a P2P Shares fund) can review and use for negotiation.
Step 5: Negotiate and finalize trading terms
After you have submitted an ask price, you will have the opportunity to negotiate with prospective buyers on the price of your shares. In some circumstances, particularly when markets are volatile, the bid-ask spread might widen, indicating that there is disagreement about what price a private company’s shares should sell at. But if the bid-ask spreads are tight, that is an indication that private market buyers and sellers are in more alignment, which might result in more liquidity.
In the public market, bid-ask spreads can often be as low as one cent due to the broad level of information available for most public securities. However, given the lack of widespread price disclosure of private market stock trades, private market bid-ask spreads can be several percentage points, if not double digits, apart.
Once you have agreed to a price (either via a direct negotiation or via a P2P Shares fund offering transaction), the trade is “accepted” and moves on to the next stages of the process.
Step 6: Enter escrow and execute documents
At this point, you will need to enter escrow, fill out all required paperwork and sign a stock purchase agreement.
The next steps vary depending on the type of transaction. If you are an existing investor in a P2P Shares Fund and are looking to liquidate your previously purchased fund units, can you move to Step 8.
Step 7: P2P Shares submits ROFR to company
In a direct transaction, even after you finalize an agreement with a buyer, the process is not complete. Once you enter into a selling agreement, P2P Shares notifies the company of the pending transaction. In most situations, the company’s Board of Directors will have between 30 and 45 business days to decide on ROFR, though terms may vary significantly between individual companies, and some companies respond more quickly to ROFR requests than others. There may also be legal or other fees required by the issuing company to complete a transaction.
Why would a company choose to exercise its ROFR rights? A company may deem the potential transaction price as too low; they may not want to add another external investor to the company’s cap table, or they may have other reasons. In some cases, an existing stockholder may also have a ROFR in addition to the company. Either way, the ROFR process must be completed before a trade can be finalized. If a company or stockholder decides to exercise their ROFR, you will be selling your shares back to the company or existing stockholder (not to your initial buyer).
Step 8: Finalize the trade process and settle funds
Once all the steps have been completed, the transaction can be finalized.
For a direct transaction, once a Stock Transfer Agreement (STA) has been circulated and signed, the investor (which may be a P2P Shares fund) would distribute the funds to you. This step, depending on the origination of the wire and general banking holidays, can take approximately 1-5 business days.
If the ROFR is exercised, you would continue with the company process which may vary, and you will be wired funds by them. This step, depending on the origination of the wire and general banking holidays, can take approximately 1-5 business days.