``More investors are participating in funding rounds, and per equity crowdfunding regulations, those shares and debt agreements can actually be traded on public secondary markets (pending at most a one-year lock up period). The larger the investment community participating in these seed rounds, the greater the secondary market for those rounds. Investors no longer have their money locked up in a startup for 5-10 years as they wait for that startup to either be acquired in an M&A or to go public via an IPO. They can trade their investment for profit or loss much sooner than was possible before. With that liquidity, there is what is known as a "liquidity premium."

Investors are willing to pay more for liquid asset because they are safer investments (investors can get out quicker). There's also a psychological element to it. People are averse to risk, and long-term holding is risky. Traditionally, with these types of assets, there is an illiquidity discount in today's market, in which you may invest $40,000 in a startup, but you may have to give anywhere between a 20-30% discount off your investment to get another accredited investor interested enough to buy your shares.

Comments: Be the first to add a comment

add a comment | go to forum thread