Exploring direct share acquisitions: What you should know
What is a Direct Share Acquisition?
Direct Share Acquisition allows investors to buy private shares directly from a shareholder and be listed on the company’s cap table via an EquityZen brokered transaction. This offering has the potential for a shorter time to close but requires a higher transaction minimum. Once a transaction is complete, the investor is responsible for subsequent interactions with the company including the exit process.
How are Direct Share Acquisitions structured?
The fee structure is the same as for EquityZen transactions. Investors pay a 5% buy-side fee for transactions less than $500,000, a 4% fee for transactions between $500,000 and $1M, and a 3% fee for transactions larger than $1M.
Direct Share Acquisitions are subject to the proposed size and price set by the selling shareholder. The offering is typically available for equity blocks larger than $150,000.
The time to close for a Direct Share Acquisition transaction may be shorter than for a “Standard” EquityZen deal since only one buyer and one seller need to review and sign investment documents.
EquityZen does not require funding until the Right of First Refusal (“ROFR”) period has passed or been waived by the company.
In the event of an exit, investors will work directly with the company to receive shares or cash distributions.
How are Direct Share Acquisitions priced?
The initial offering size and price are set by the selling shareholder. Investors can negotiate with the seller, facilitated by EquityZen. Investors may also provide an Indication of Interest greater than $150,000 with a firm price bid to initiate a direct share acquisition.
How do I know if a Direct Share Acquisition is right for me?
You have prior experience investing in the private markets.
You would prefer direct ownership of shares and to be listed on the company’s cap table.
You are comfortable with the bespoke transaction structure and owning management of subsequent interactions with the company and the exit distribution process.
What are the risks or special considerations for a Direct Share Acquisition?
As these transactions involve direct negotiation between the buyer and seller on transaction terms facilitated by EquityZen, there is a risk that the parties may not come to an agreement. Like in all investment offerings, there is a risk that the seller decides not to sell even after terms are agreed to.
There may be a higher risk of the company exercising its Right of First Refusal (“ROFR”) if the buyer is new to the company’s cap table. Additionally, companies may charge a transfer or processing fee that the buyer is required to pay.
The buyer will not remain anonymous to the seller and the company since this is a direct transaction.
The company may request additional information about a buyer before allowing them to purchase shares.