The secondary market and risk management
Private companies can often grow faster than listed companies. As Mark Zuckerberg once put it: "Move fast and break things."
Although this strategy has led to success for some private companies, it also entails significant risks – and therefore also for investors who buy shares in private companies on the secondary market.
Fortunately, there are several ways to manage and reduce the risks when investing in unlisted shares. Here are some important aspects to keep in mind.
Do your own analysis
Doing a careful analysis is at least as important in the private market as on the exchange.
Although the insights of analysts and market experts can be valuable, investors should always assess a private company's potential themselves. This means reviewing the company's financial health, growth prospects and stability, as well as the competence of management and the company's position within its sector.
Investments in private companies also have additional factors to take into account; for example, the phase the company is in is an important factor to consider. The youngest private companies often involve higher risk and operational challenges, while later-stage companies may have a clearer path to success but generally offer somewhat lower upside. An in-depth analysis of the company's development phase can give a better understanding of its future potential and risk level.
Diversification and liquidity
Private investments can have high growth potential, but they also have low liquidity. Unlike listed shares, which are traded daily on regulated markets, selling unlisted shares requires you to find a buyer, agree on a price and handle the transaction yourself.
Fortunately, platforms such as Accumeo have been developed to solve these challenges. We offer a modern marketplace where shareholders in private companies can buy and sell unlisted shares more smoothly.
Despite this, it is important for investors to understand the liquidity risks on the secondary market for unlisted shares. To ensure that an investment in a private company can be realised, you should assess demand from other investors, analyse potential exit routes such as an IPO, acquisition or continued trading on the secondary market, and understand any lock-up periods or restrictions that may limit the sale of shares after an IPO. Having a clear liquidity strategy reduces the risk of capital being tied up longer than expected in private companies.
The secondary market – a new opportunity
Managing risks when investing in private companies requires a combination of thorough analysis, diversification, liquidity assessment and an understanding of both company-specific and market factors.
By applying these strategies, investors can better navigate the secondary market and identify private opportunities that were previously hard to reach. But just as with all investments, careful due diligence and awareness of the risks are crucial for long-term success.
If you have further questions about investing in startups, you are welcome to get in touch.
Our platform makes it easier to invest in startups smoothly. We offer shares such as Kaunis Iron, Blykalla, Exeger, Klarna and OpenAI.
Important information: Investing in unlisted shares involves significant risks, including the risk of losing all invested capital. These assets are often illiquid, have limited pricing transparency and may require long holding periods. Investments in private companies are only available to approved investors and there are no guarantees of returns. Past returns are no guarantee of future returns.
