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How secondary markets can help employees unlock their equity

The concept of inviting employees to participate in the long-term success of a company, as opposed to simply being the recipients of a salary every month, makes sense on so many levels.

Motivation, engagement, accountability – it ticks off a plethora of key attributes that management teams are so keen to foster amongst staff.

What’s it worth?

Granting colleagues an equity stake in a company can fall short if there’s no real way of providing a valuation as to what it’s worth – or indeed a transparent exit route when the shareholder has completed any lock-in clauses and wants to realise the value of some of those assets.

In many cases, smaller companies offering employees share capital have done so merely as a gesture or asked them to sign obscure share agreements that fail to outline the ways in which they can benefit.

The shares are vested but when it comes to releasing the value, they are reliant on either a liquidity event like an outright sale, or a nuanced deal with another connected party who is keen to increase their holding, albeit with little meaningful price visibility.

In an ideal world, a full public market listing could be deployed to overcome this situation, but with the significant resource burdens – both in terms of outright costs and employee hours – that accompany this, for many companies this simply isn’t a realistic option.

Realise value

One alternative is to explore a secondary market. These private marketplaces allow investors and traders to purchase unlisted assets such as shares, bonds and other securities. And in some cases, allow employees to sell their shares, irrespective of whether the company later goes public.

Solutions such as JP Jenkins allows shareholders to see a representative valuation of their equity, as well as a secure platform for matching them with other prospective buyers and sellers.

What’s more, a regularly updated valuation for the shares lays out the foundation for being able to transact in the company’s securities at any time.

For many, this intermediate step has the potential to create a solid foundation when it comes to making the step to a full public market listing.

InfinitX powers the JP Jenkins platform and can be deployed by any entity looking to offer functionality that’s like a public market, but private.

So companies who are considering vesting shares to employees but are doubting the tangibility of the incentive that this will offer should be reassured that meaningful options exist which allow recipients to understand the value they are generating.

And for employees to see the full benefit of such an initiative, company owners owe it to them to ensure there’s a transparent mechanism in place to allow them to trade out of any such position.

How secondary markets can help employees unlock their equity

By Mason JP Jenkins Profile 17 Jul 2023