Get all the benefits of staying private, plus
the best aspect of going public (liquidity).
Liquidity is an important vehicle for realizing financial value from private equity.
The problem is – the way liquidity works for private companies today is broken. The available options are expensive, time consuming, and restrictive for business owners.
Think about it. Private companies have only two ways to facilitate liquidity for their shareholders.
Since 1997 both the number of U.S. public companies and the number of IPOs have been cut in half. IPOs now represent less than 1% of all VC realization activity. On top of that, being a public company often means giving up voting control and paying $2-10 million a year in additional expenses.
Achieving liquidity through an M&A transaction might sound appealing but selling to a private equity firm or a strategic buyer can be a drawn out, expensive, and risky process that might give a great payout today but also means giving up control of your company.
The currently available options for monetizing private shares (or running expensive secondaries) are clouded with challenges:
- Stock restrictions
- Rights of first refusal
- Limited price discovery
- Fiduciary responsibilities
- Compliance with securities laws
Allowing shareholders to reap the rewards of their efforts and extract financial value from the business shouldn’t be this hard. Private companies need a better way to provide liquidity.
An Nth Round provides the simplest way for private companies to facilitate shareholder liquidity.
How It Works
We pair a trusted legal framework with innovative technology to make facilitating liquidity simple and affordable.
Doing an Nth Round doesn’t require you to tear up your existing corporate structure and start from scratch. Unlike going public you still control every aspect of who owns shares in your company and unlike a private sale you still can own and control your business.
Instead, an Nth Round is a value-adding layer that sits on top of your existing cap table and facilitates liquidity.
You can use an Nth Round to incentivize key stakeholders with real equity, transfer ownership to liquidate assets, and even provide a simple path for new investors to become shareholders if you need additional capital.
Let’s break down each step of the process.
Step 1. Create your voting trust.
By using a voting trust, an Nth Round consolidates voting control and creates a walled garden for authorized shareholders. Entry is restricted by one narrow gate, and controlled by a board-appointed trustee.
The voting trust is a legal framework (a contract) whereby shareholders keep their shares and relinquish the votes associated with those shares to the trustee. Voting trusts are ideal arrangements for facilitating liquidity in private companies, while simultaneously streamlining corporate governance and control.
Step 2. Deploy your smart contract.
The smart contract provided by Nth Round removes the need for the company CFO to oversee each transaction. It provides a highly trustworthy and reliable solution for managing a private stock book. Once entries are verified on a distributed ledger, nothing can change those entries, not even the most skillful hacker.
Nth Round leverages the power of the blockchain to create a secure distributed ledger which serves as the trusted transaction platform for the purchase and sale of equity. Distributed ledgers are accounting systems with one profound benefit: immutability.
Step 3. Invite authorized shareholders.
Once the voting trust is created and the smart contract is deployed, the next step is to whitelist and invite the shareholders you authorize for buying or selling. Only these invited shareholders (or prospects) may participate. Others will be denied.
Step 4. Shareholders now can buy or sell securely, and achieve liquidity.
Once whitelisted and invited by the trustee (usually the CEO or CFO) authorized shareholders will have access to a private white-labelled trading and investor relations portal. All activity, including price limits and who may participate (and to what degree) are controlled by the trustee and the board.
Step 5. Administrators can manage all aspects of their investor relations AND have complete control.
The Nth Round platform provides tools to reduce the work required to provide an exceptional experience to all shareholders. There are two components of the Nth Round platform:
Investor Relations Portal
Your company will be provided with a hosted, secure, and white-labelled investor relations portal that can be used to present important shareholder information in a single “always available” location. This portal provides invited shareholders with secure access to company updates, financial statements, and investment opportunities.
The trustee and company-appointed administrators have exclusive access to all transactions and balances. The administrator can also invite (seed) new accounts, make appropriate transfers as needed, set price limits (floor and ceiling) which conform to company objectives, and in extraordinary circumstances, reclaim shares or even pause the entire system. In essence, the administrator has the same level of access and control as he or she would have governing a conventional private company stock book.
5 Key Benefits of an Nth Round
You’ve read about how Nth Round facilitiates liquidity for private companies. Here are the five biggest benefits of using an Nth Round to achieve liquidity versus an IPO or private sale.
1. Happy shareholders
In order to realize a financial return on their equity a shareholder requires a liquidity event. Traditionally these events are few and far between (if they ever happen). With an Nth Round shareholders are provided effective liquidity provisions they can use to liquidate a some (or all) of their investment when they need it.
2. Increased company value
One of the greatest symptoms of a lack of liquidity in private companies is the well-documented illiquidity discount or DLOM (discount for lack of marketability). Routinely used in formal valuation exercises, this factor typically ranges from 20-40%, and can reach as high as 50% in certain circumstances. Greater liquidity can unleash equity with a commensurate rise in the value of your company.
3. Secure and compliant
The sale of private equity whether through an IPO or private sale is a costly and time consuming endeavor because compliance with SEC regulation must be maintained. An Nth Round greatly reduces this compliance burden by providing an effective mechanism to ensure the criteria for a resale under Section 4(a)(1 1⁄2) are met.
4. Flexible, easy, and low-cost
Liquidity can be facilitated for your shareholders at a fraction of the cost of an IPO or the due-diligence necessary for a private sale. Once in place, Nth Round reduces the administrative burden for company officers and opens the door to new and creative ways to use equity as an incentivize for key stakeholders.
5. Always available
Unlike an IPO or a private sale. Nth Round provides liquidity provisions that are available to shareholders 24 hours a day, every day of the year. This availability can reduce the number of anxious shareholders, reduce fundraising hassles, and prevent the stress related to single big bang liquidity events.
Ready to get started?
Our team is here to help you understand exactly how an Nth Round can help your company facilitate liquidity for your shareholders.