How Secondary Market Works
The concept of secondary markets is still new in the market, but it provides a great opportunity for both investors and fund seekers. It allows investors to get rid of super risky or unwanted investments by trading them. Transactions that take place in the secondary market involve the buying and selling of private crowdfunded securities through direct communication between a seller and a buyer. Sometimes, a broker may be involved as a mediator.
Before the emergence of the secondary market in crowdfunding, private equities were illiquid. This means that they remained frozen for a year, and could only be sold or donated to the issuer, your family member, or an accredited investor. With secondary markets, investors can now update their portfolio directly and participate in more lucrative deals. Secondary markets allow accredited investors who purchased shares on a crowdfunding platform to trade them in the marketplace. Some platforms allow even non-accredited investors to participate in secondary markets.
Opportunities for Business Owners and Investors
As a growing area in the crowd investing sector, secondary markets are quite complex. This largely because no organized marketplace has been established yet. Nonetheless, the buying and selling process is seemingly transparent and straightforward with minimal caveats. For business owners, they have a chance to attract new investors before the start of a fundraising campaign, allow investors to withdraw their funds when they want, and observe the process independently since the broker works on a nominee’s structure focusing more on the transactions.
Although the secondary market allows for a smooth buying and selling of shares, shares must meet certain eligibility requirements to be open for trading. The number of closed deals also depending on the supply-demand ratio. Still, secondary markets provide an exciting opportunity for investors. On one side, buyers can access shares of companies outside a crowdfunding round, avoid fees when investing, and purchase more rights for the company’s property already possessed. On the other hand, sellers can deposit funds into their investment account, balance and diversify their portfolio, and liquidate some investments or convert them into cash without having to wait for the business to be acquired or the exit time.
Benefits to Crowdfunding Platforms
Crowdfunding platforms also enjoys several benefits from secondary market. As a middleman, a crowdfunding platform can satisfy customer’s demands in secondary buying and selling, increase revenue through the collection of fees from external investors, and involve more potential startups and backers in fundraising campaigns. They are also able to make stakes and shares more liquid and profitable.
The secondary market is still a new concept but its impacts on crowdinvesting cannot be overlooked. It makes crowdfunding securities more liquid and profitable. In the process, attracting more investors and business owners to crowdfunding.
