What is EquityZen and is it available to Canadian investors?
Invest in companies before they go public, but only if you’re an accredited investor.
Note: Unless otherwise stated, all dollar amounts on this page are in US dollars.
What is EquityZen and how does it work?
EquityZen is an online platform that allows retail investors to invest in companies before they go public. Investing in pre-IPO companies is typically limited to company employees and insider traders. But EquityZen opens up the floor to public investors as long as they meet the platform’s investment minimums and criteria.
EquityZen also purchases shares from shareholders holding equity in privately-funded companies. It can be difficult for shareholders to liquidate their investment when a company isn’t publicly traded. EquityZen solves this problem by offering cash in exchange for equity in privately funded companies.
What is an initial public offering (IPO)?
How EquityZen works for investors
To invest through EquityZen, you need to be an accredited investor. And you can’t purchase shares of the pre-IPO companies you’re interested in — at least not directly.
Instead, investors buy into EquityZen funds that purchase shares on their behalf. Minimum investments start at $10,000 and holding periods for single-company investments typically span 2-5 years. If the company is acquired or goes public, shares are distributed to your brokerage account or cash is deposited to your bank account.
You can also buy into a pre-populated portfolio hand-picked by the EquityZen investment team. This is EquityZen’s managed portfolio option, offering exposure to 4 to 25 companies with a single investment.
How EquityZen works for shareholders
EquityZen purchases equity in privately-funded companies from shareholders looking to liquidate their investments and free up some cash. Shareholders are asked to sign a non-disclosure agreement and provide shareholder documents so EquityZen can perform its due diligence and confirm equity ownership.
If everything checks out, your equity is listed on the EquityZen marketplace. And if there’s enough investor demand, EquityZen enters into a Placement Agreement with you to iron out the details and finalize the transaction. You’ll need to come to an agreement with EquityZen on the number of shares you’re prepared to offer and at what price. Deals typically close 2-3 weeks after company approval and a 5% transaction fee applies when the deal closes.
After the deal closes, equity ownership is transferred to EquityZen and you’ll receive a cash transfer to the external account of your choice.
What is an accredited investor?
To be considered an accredited investor, you must meet one of the following criteria set by the Securities and Exchange Commission (SEC):
- You earned over $200,000 in each of the last 2 years and expect the same for this year.
- You and your spouse earned over $300,000 in each of the last 2 years and expect the same for this year.
- You have a net worth of at least $1 million, alone or together with your spouse, excluding the value of your primary residence.
Pros and cons
Pros
- Access pre-IPO investments. Pre-IPO shares are typically limited to company employees and executives, but EquityZen offers accredited retail investors access to the pre-IPO market.
- Open to international investors. EquityZen’s marketplace is open to both US and international investors, so long as they verify their accreditation status.
- Managed portfolios. For investors seeking broad exposure to the pre-IPO market, EquityZen offers curated funds comprised of 4 to 25 companies through a single investment.
Cons
- High investment minimums. Investors are expected to put down no less than $10,000 for an EquityZen pre-IPO purchase.
- Only open to accredited investors. To invest with EquityZen you must meet the SEC’s criteria for accredited investors.
- Holding period. Holding period minimums vary, but most EquityZen funds require investors to lock in funds for two to five years.
- No phone support. The EquityZen support team can only be reached by email and snail mail.
What research does it provide?
EquityZen says that it vets companies before listing them on its marketplace, sticking with companies with proven track records of raising capital from well-established venture capital investors. EquityZen marketplace listings are equipped with numerous data metrics to help investors make an informed decision, including company valuations, funding history, relevant news stories and notable investors.
What you won’t find on an EquityZen listing is information on a company’s most recent financials, exit strategy, prospectus or investor presentation. Any information EquityZen presents on its platform is derived from what’s publicly available and its offerings are based on prices paid by recent investors.
Pricing and fees
EquityZen offers numerous investment options on its platform, including single-company investments, managed funds and direct acquisition options. Minimums, fees and holding periods vary by investment type.
Single-company funds
| Standard deal | Express deal | Demand-driven deal | |
|---|---|---|---|
| How does it work? | You invest in a fund that acquires shares from one company. | You buy a fund position from an existing EquityZen investor. | You invest in a fund that actively sources shares in companies with limited equity. |
| Minimum investment | $20,000 ($10,000 for your first investment) | Varies | $10,000 |
| Fees | 5% upfront | >5% upfront | 3% upfront, 10% carry |
| Time to close | 6-8 weeks | 3-5 days | 6-month investment period |
| Hold period | 2-5 years | 6 months to 5 years | 2-5 years |
| Distribution options | Shares or cash | Shares or cash | Shares or cash |
Managed funds
| Growth opportunity | Thematic | |
|---|---|---|
| How does it work? | You invest in a fund that offers exposure to 15-25 companies. | You invest in a fund that offers exposure to 4-6 companies in a target industry. |
| Minimum investment | $20,000 | $10,000 |
| Fees | 1-2% annual fee, 10% carry | >0.25%-1% annual fee, 10% carry |
| Time to close | 12-month investment period | 12-month investment period |
| Hold period | 5-7 year fund life | 5-7 year fund life |
| Distribution options | Cash | Cash |
Direct
| Direct share acquisition | |
|---|---|
| How does it work? | You directly purchase pre-IPO shares and cap table access. |
| Minimum investment | $200,000 |
| Fees | 3%-5% upfront |
| Time to close | 6-8 weeks |
| Hold period | Varies |
| Distribution options | Shares or cash |
EquityZen reviews and complaints
EquityZen reviews are generally favorable. As of January 2020, it doesn’t have a Better Business Bureau (BBB) profile and there are no complaints about EquityZen on the Consumer Financial Protection Bureau. The platform’s Trustpilot page is sparsely populated: just 5 reviews that range from negative or lukewarm. Some reviewers praise the platform’s range and quality of investments but complain of distribution errors. Others complain about customer service or question the benefit of investing through EquityZen.
With no BBB profile and few Trustpilot reviews, we turn to Reddit for investor feedback on the platform. Redditors cite solid returns on successful deals and praise the platform’s healthy deal flow, but warn that some deals fall through and that investment liquidity can be slow and unpredictable.
How do I sign up?
EquityZen offers 2 distinct account options: 1 for investors ready to buy pre-IPO shares, and 1 for shareholders looking to sell shares.
Investor
Begin the signup process on EquityZen’s homepage:
- Click Sign Up and select the Investor tab.
- Enter your email address and create a password.
- Review EquityZen’s Privacy Policy, Terms of Use, Form CRS and Additional disclosures and click Continue.
- Enter your full name and mobile number and indicate whether you’re investing on behalf of yourself or an investment firm.
- Select the criteria that qualify you as an accredited investor and click Submit.
- Answer EquityZen’s questionnaire about your risk tolerance.
- Review the platform’s Risk Factors and Confidentiality Agreement and click Continue.
- Answer EquityZen’s questionnaire about your investment goals and experience.
- Add any relevant market sectors or company names to your watchlist and click Done.
Shareholder
The shareholder signup process also starts on EquityZen’s homepage:
- Click Sign Up and select the Shareholder tab.
- Enter your email address and create a password.
- Review EquityZen’s Privacy Policy, Terms of Use, Form CRS and Additional disclosures and click Continue.
- Enter your full name and mobile number and click Continue.
- Review EquityZen’s Confidentiality Agreement and click I Agree.
- Select the company name you plan to sell equity in from the drop down menu and click Continue.
- Select the type of equity you own, how many shares you hold, their purchase date and the price you’d like to receive for your shares. Click Done.
Is EquityZen legit?
EquityZen was founded in 2013 and is headquartered in New York City. It states that it’s closed over 14,000 investments and served over 200 companies, including Airbnb, ByteDance, Hulu, Instacart and SpaceX.
It doesn’t have a Better Business Bureau profile and its Trustpilot page has just 5 reviews. There’s some Reddit chatter about the platform, but nothing to suggest EquityZen isn’t a legitimate company.
With no BBB page and fewer customer reviews to draw from, you’ll have to vet the platform yourself before signing up. Browse Reddit forums that discuss the platform to hear what EquityZen investors have to say before you create an account.
How do I contact EquityZen support?
Touch base with an EquityZen representative by:
- Email. Fill out a secure online form or send an email to support@equityzen.com.
- Mail. Send mail queries to: EquityZen Inc., 30 Broad Street, Suite 1200, New York, NY 10004
- Chatbot. EquityZen’s chatbot will try to match your query with an existing FAQ — and if it can’t, you’ll be rerouted to its email support.
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Bottom line
Accredited investors can access a unique investment class through EquityZen: the opportunity to back privately-held companies before they’re listed on public exchanges. But high minimums and lengthy holding periods may act as an investment deterrent.
Before you invest, review your account options across multiple platforms to find the account best suited to your needs.
Frequently asked questions
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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