The term “democratization” is used liberally when discussing alternative investments. But it is also a fitting one.
Over time, American democracy evolved to ensure all citizens have an equal right to buy and own land. Now, other areas of the US economy are seeing a similar evolution, as companies
work to make it easier for investors to participate in private markets — and, by extension, build wealth.
Private investments — such as private equity (PE) and venture capital (VC) — have traditionally been reserved for institutional investors, high-net-worth individuals, or company insiders, due to high minimum investment thresholds and long investment horizons.
But the rise of secondary markets is breaking down those barriers.
Emerging platforms like Augment* allow investors to buy and sell existing stakes in private companies or funds before a traditional exit event, such as an IPO or acquisition.
By law, these private secondary markets are open only to accredited and institutional investors. However, they still increase the accessibility of private investments by exposing these opportunities to a wider pool of players and lowering their risk profile.
In secondary markets, individuals and smaller institutions like pensions or endowments can gain exposure to PE funds or VC portfolios from which they may otherwise be excluded, due to high capital requirements.
Augment provides a platform for investors to connect with sellers of pre-IPO company shares. This allows individual investors to purchase fractional shares in private companies before they go public, offering potential exposure to private companies that may present different investment opportunities compared to public markets, though with correspondingly different risks. This has created an alternative to traditional venture capital investment which typically requires larger capital commitments.
However, investing in pre-IPO shares involves significant risks, including lack of liquidity, limited information availability, and potential loss of principal. Past performance does not guarantee future results. Investors should carefully review all offering documents and consider their investment objectives, risks, charges, and expenses before investing.
Secondary marketplaces also improve liquidity for private investments.
Unlike in public markets, where shares are regularly bought and sold on regulated exchanges, investors in private companies are typically left without an easy way to sell their stakes until the company matures or is sold. This can create a liquidity crunch for private investors: they may theoretically hold great wealth but have little to no control over when they are able to access it.
Secondary marketplaces aim to expand the potential pool of buyers and sellers in private markets by providing a technology platform where interested parties can discover potential counterparties. While there is no guarantee of finding a match or completing a transaction, these platforms can provide visibility to opportunities that might otherwise be difficult to discover through traditional networks.
This increased visibility to potential counterparties may help holders of private securities explore liquidity options, though successful transactions depend on multiple factors including price, timing, and market conditions.
*Augment is a registered Alternative Trading System (ATS). All securities transactions are conducted through Augment Capital, member FINRA/SIPC. Augment Capital serves as the broker-dealer for transactions executed on the Augment ATS platform.
Important Disclosures: Investing in private securities involves substantial risk, including the potential loss of principal. Private securities are typically illiquid, have limited pricing transparency, and often require longer holding periods. These investments are available exclusively to qualified accredited investors and offer no guarantee of returns. Additionally, past performance of private securities does not indicate or predict future results.