There is a growing market for private investments. As the economy, booms, and thrives, and more people open up businesses, they can issue equity, shares, and stakes in the entity to different parties. The number of shares issued might vary by the entity structure. But there’s one problem with private equity investments; they’re not as liquid as one would want them to be.
That’s a good thing and a bad thing.
Investors can obtain an illiquidity premium, yet in the same vein, they might not be able to divest their investment in times of great economic distress. Price discovery is also an issue within private markets. Information opacity might also be an issue in private markets. Valuations do not equate to the inherent value of each unit of share. Understandably so, private investments are usually reserved for accredited investors or investors who meet specific wealth criteria.
As such, most investors participate in the public equity markets, buying up blue chips like Abbvie or growth stocks like Beyond Meat or Tesla. There’s certainly risk in these markets, as evidenced by the Great Depression of 1929-1939, and recessions that hit the markets from 1962 to the most recent recession from 2007 and lasted to 2009.
There’s risk everywhere, but in the public markets, if you listen to or watch the canary in the coal mine, you can make your exit before these great calamities occur. There’s likely someone who will take the opposite side of your trade.
As technology progresses and overall global wealth increases, more inventions and mechanisms come about that create value for investors, both in the public and private markets.
One such improvement is that of a firm named Parallel Markets.
Parallel markets aim to “bring liquidity to private markets.” The company plans on doing so by creating and maintaining software that facilitates the movement of illiquid assets. The company notes that it works institutions ranging from venture capitalists, real estate, and private equity.
At the current moment, Parallel markets cater to those who are accredited, investors. Parallel Markets help in making these investors’ lives simpler by letting them have streamlined and straightforward access to a variety of illiquid investments within one platform. Everyone asks investors to verify their accredited investor eligibility; this causes complexity and friction and can delay investment, progress, and growth.
Parallel Markets seeks to minimize this accreditation verification with their solution, by catering to all the crowdfunding platforms and other fundraise entities that appeal to many accredited investors. They can use Parallel Markets as an on-demand verification tool and accept investors.
It is a simple solution, but it is sure to improve business.
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