Shareholder liquidity | Nth Round

Get liquidity and keep control.

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 monetize:

  1. IPO
  2. M&A

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 traditional options for facilitating shareholder liquidity 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.

Setting up an Nth Round is fast and easy.

Step 1. Configure your investor portal.

It’s easy to set up your investor portal. Just provide the company mission statement, some background information, and headshots and bios for your leadership team. Then, upload news items and/or shareholder correspondence, as much or as little as you desire. You decide which items are public and which are private (viewable only by invited participants).

Voila! Your investors now have one place to go for everything they need, including the latest from you and your company. If you are fund-raising, you also can upload offering materials, like your presentation deck, investor questionnaire, and wiring instructions. Using your secure investor portal, invited prospects will be able to send you funds quickly and easily.

Step 2. Start inviting participants.

For both existing shareholders and new prospects (if desired), just add their names and email addresses to your investor whitelist. Now invited participants can access both public and private information using your investor portal. If they are keen to buy or sell shares, you will decide how many shares to authorize. It’s super-easy and super-flexible.

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.

 

Free eBook: Ways to Unlock Liquidity

Learn how to delight your shareholders and employees by using easy tools to unlock liquidity for your private business. Download our free eBook to find out: 

  • Why offering liquidity helps with employee retention and generates capital for private companies
  • The challenges of providing liquidity without losing control
  • Options for creating liquidity in a private market, and the associated obstacles

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.