Secondary Markets

Buying something from the creator or issuer is often called the “primary market.” Reselling it to someone else is often called the “secondary market.” I have spent my career in the primary market, buying equity from very young companies and holding it for many years usually until a sale or IPO. That has worked well for me over the years but recently, I have watched a vibrant secondary market develop for private company shares and I think that is a good thing as I believe more liquidity is better than less liquidity in most, maybe all cases.

I was reminded of this yesterday when I purchased tickets to a Knicks game against the Warriors next week at Madison Square Garden. As a season ticket holder, I was able to get into a pre-sale to purchase two of the two thousand seats that will be available at that game, the first Knicks game at MSG with fans in almost a year.

Those tickets come with some very serious, and appropriate requirements including obtaining a negative Covid PCR test within 72 hours of the game. After discussing the requirements with my son last night, we decided it wasn’t for us and I put the tickets on StubHub. Although I probably could have and should have marked them up, I just wanted my money back and the tickets sold in a matter of minutes and I was made whole.

I knew I could do a secondary sale when I purchased the tickets and I also knew that as a season ticket holder, I had the ability to buy when others could not, and that I had to move quickly. Knowing that I could resell them took the risk out of moving quickly and I was able to do that with confidence.

That’s an example of how secondary liquidity reduces risk and increases trust and confidence in a market.

Going back to startup equity, I believe that we will continue to see more and more secondary liquidity for startup equity. Our portfolio company Carta has recently launched a market for exactly that called CartaX and I believe it will be an important source of secondary liquidity for founders, employees, and investors in startups. As we de-risk the investments of time and money that everyone is making in these startups, I believe that will draw more talent and more capital to the startup sector.

And that is a good thing.