June 11, 2024

EquityZen Review

Read more about EquityZen
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EquityZen's platform makes it easier for you to buy or sell private company stocks. Learn more in this review.

5-point scale (the higher, the better)

Pros and Cons

  • Potential high returns
  • Access to private company stocks
  • High risk
  • Accredited investors only

Bottom Line

Legit platform to invest in private equity

Investing early in private companies could potentially result in high returns. Unfortunately, it's usually out of reach for retail investors.

EquityZen solves that issue by creating an online marketplace for both buyers and sellers of pre-IPO stocks.

In this article, learn how EquityZen works for both investors and shareholders.

What Is EquityZen?

EquityZen is a private equity secondary market platform. It helps early shareholders easily sell their private company shares. At the same time, it enables accredited investors to invest in this typically inaccessible private market.

The minimum investment may vary, but it starts at $10,000. Currently, it is only available to accredited investors.

EquityZen was founded by Atish Davda and Phil Haslett in 2013. It has now over 660,000 total subscribers and over 41,000 closed transactions as of May 2024.[1]

What qualifies an accredited investor?
You're considered an accredited investor if you:[2]
  • Have a net worth of over $1M (excluding primary residence)
  • Earn $200,000 (or $300,000 jointly with a spouse) annually for the past two years
  • Have the Series 7, Series 65, or Series 82 license
  • Are a "family client" of a family office
  • Are executives and knowledgeable employees of the fund

Who Is EquityZen Best For?

EquityZen is best for:

  • Accredited investors seeking to invest in private companies, or
  • Later-stage tech company shareholders who want to liquidate their shares immediately

Not all private company shares are supported by EquityZen. It only caters to later-stage tech companies with over $50M in VC funding from top quartile firms, Series C or later.

Some of the companies currently listed in EquityZen include SpaceX, ByteDance (TikTok), Reddit, Acorns, Axiom Space, Stripe, OpenAI, and Epic Games.

How Much Money Can You Make in EquityZen?

The annualized returns per company in EquityZen ranged from +2,831% to -100% as of June 30, 2021.[3]

Annualized ReturnInitial InvestmentAnnual Gains/Loss (in USD)
2831%$10,000$283,100
430%$10,000$43,000
129%$10,000$12,900
-100%$10,000-$10,000

So if you invested $10,000 in a single company fund at EquityZen, you could either get $283,100 per year or lose it all. The holding period averages 23 months.

However, this 2,831% gain is an outlier. The succeeding top 2 to top 10 gains were just between 430% and 129%, respectively. So while there is a chance for explosive growth, it isn't always the case.

It's also normal to see a 100% loss. There were more wins than losses in EquityZen's exited investments, but it's worth noting that an investor who does not diversify would have a higher chance of experiencing portfolio losses.

Can I sell my shares on EquityZen?
Yes, you can sell your vested stocks as long as the company is included in EquityZen's supported list. If you have existing EquityZen fund shares, you can also sell them through the Express Deal secondary market to other investors.

Is EquityZen Worth It?

For investors, yes. However, this might only apply to those who are willing to lose all their money in exchange for early access to private markets.

At EquityZen, you can actually get the physical stocks of the private company if there is a successful exit event. Plus, the fees for a single company fund sound reasonable at 5% upfront.

However, EquityZen is not a good option at all for investors who do not understand how to value companies as you might find this a little bit too complex and risky.

For shareholders, it depends. EquityZen has already facilitated multiple sales of private company stocks, so you don't have to worry about its legitimacy.

However, some sellers prioritize the quoted price above everything else. So while EquityZen is already a great platform, it's still a good idea to ask for quotes from others like Forge Global as a reference.

If you are a shareholder who wants to sell stocks at EquityZen, start reading here.

EquityZen for Investors

Judging if EquityZen is worth it or not will depend on whether you are looking at it from an investor or a shareholder perspective. Learn how it works for both, starting with investing.

How Does EquityZen Work for Investors?

EquityZen lets you buy private company stocks through a fund or direct investment.

Here are the 3 main offerings for accredited investors in EquityZen:

  • Single Company Funds
    Invest in a fund specifically made to buy shares in one private company. Choose either the Standard or Express deals.

    Standard Deal is the new fund initiated by EquityZen, while Express Deal is the shares sold by other EquityZen investors.

    When you buy "shares" in a Single Company Fund, you do not own the stocks of that private company yet. Rather, you are buying the shares of an LLC that holds ownership in that private company. You will only get your shares or cash after an exit event such as an IPO, M&A, or buyback.

  • Multi-Company Funds
    Get exposure across multiple private companies in one go. Minimum investment is $20,000.

    For a broader portfolio, select Growth Opportunity Fund. But for a more concentrated portfolio with a specific theme, choose Thematic Funds.

  • Direct Share Acquisition
    Buy the shares directly and EquityZen will source it for you. However, the minimum investment is higher at $200,000.

Facilitating one big sale has a higher chance of being approved by private companies compared to multiple small investments. This is why EquityZen is acting as the investor representative through LLCs for single company funds.

Withdrawing Profits

Minimum Investment[4]Exit Distribution
Single Company - Standard$10,000Shares or cash
Single Company - ExpressDepends on sell offerShares or cash
Multi-Company - Growth$20,000Cash only
Multi-Company - Thematic$20,000Cash only
Direct Share Acquisition$200,000+Shares or cash

You have to wait for an exit event to realize your gains or losses. If you plan to sell early, you can only transfer your LLC ownership to other investors if you meet certain requirements.

Here are the 3 ways to realize your investment:

  • Express Deal
    If you own more than 2% of a single-company fund, you can transfer your LLC ownership after a 12-month holding period.[5] Simply create a sell order in Express Deals and wait for other EquityZen investors to buy it.

  • Transfer to broker
    After a successful exit, EquityZen will transfer your pro-rated shares to your brokerage account for you to sell or hold.

  • Receive cash proceeds
    Receive the cash equivalent of your investment once EquityZen has sold your shares in the open market post-exit.

Due to regulations, the transfer of stocks or cash after an IPO can only be done after a year or the 180-day lock-up period.[6]

As there is no assurance that there will be an exit event for all companies, EquityZen advises investors to prepare to hold their investment for an indefinite time.

Fees

ProductFees[7]
Single Company Funds - Standard5% upfront
Single Company Funds - Express5% upfront
Multi-Company Funds - Growth Opportunity1.20% - 2.25% annual mgmt fee + 15% carry
Multi-Company Funds - Thematic0.75% - 2.25% annual mgmt fee + 15% carry
Direct Share Acquisition3 - 5% upfront

If you invest in a single fund or direct shares, it will cost from 3-5% one time.

However, if you invest in multi-company funds, the annual fee will range from 0.75% to 2.25%. Plus, there's a 15% carry fee that you need to pay every time you receive your proceeds.

Pros & Cons for Investors

Pros:

  • Secondary market
  • Access to private equity
  • Potential to own actual shares after the exit

Cons:

  • Rights of first refusal (ROFR)
  • Illiquid investment
  • Accredited investors only

What is the meaning of the right of first refusal (ROFR)?
In the context of private company investing, ROFR means that the company or an internal investor has the first right or priority to acquire the shares being sold to an external investor.

Getting Started as an Investor

To start buying private company shares, follow these steps:

  1. Create an EquityZen account
    Sign up and confirm your accredited investor status.

  2. Browse companies and indicate interest
    Indicate your interest in an offering through the watchlist. EquityZen will let you know when shares become available.

  3. Invest in live offerings
    Submit the paperwork after EquityZen opens a live offering for reservation.

Make sure to process the fund transfer within 7 days to avoid cancellation or reallocation. Termination fee is $500.[8]

Expect 8-11 weeks for a new transaction to be finalized.

EquityZen for Shareholders

EquityZen is not only for investors looking to make a profit. It's also for shareholders who want to liquidate their private shares.

Read on to learn how EquityZen works for shareholders.

How Does EquityZen Work for Shareholders?

EquityZen offers liquidity options for shareholders of private companies by tapping into its database of investors.

An EquityZen Private Market Specialist will liaise with you for the entire process once you have indicated your intention to sell.

But for EquityZen to consider your offer, you must:

  • Own vested shares or equity options (it must be exercised)
  • Create a sales inquiry at the EquityZen platform
  • Have the necessary ownership proof documents (e.g. stock certificate, signed option exercise note, or signed shareholders agreement)

Note that you cannot sell unvested shares and unvested restricted stock units (RSUs) at EquityZen.

Also, they only accept later-stage tech companies with a profile of over $50M in VC funding from top quartile firms, Series C or later.[9]

You don't have to be an accredited investor to sell shares on EquityZen.

Fees

ProductFees[10]
Selling Fee for Shareholders5% + costs imposed by the issuing company, if any
Potential additional fees: Legal$1,000 - $1,500
Potential additional fees: Transfer$1,000 - $3,000

Shareholders who want to sell their shares will be paying a placement fee of 5% to EquityZen, which will be reflected accordingly to the purchase price.

However, depending on the provisions of your company, you need to spend more on legal and transfer costs, which can range from $1,000 to $3,000.

Pros & Cons for Shareholders

Pros:

  • Quick liquidity option
  • Thousands of accredited investors

Cons:

  • High sale minimum
  • Limited companies accepted

How To Get Started as a Shareholder

To sell your shares at EquityZen, here's what you need to do:

  1. Create an EquityZen account
    Sign up and verify your email.

  2. Indicate your interest to sell
    Complete a short e-form to indicate your interest in selling shares, along with your desired price and number of shares.

  3. Wait for EquityZen's specialist
    If a transaction arises, an EquityZen Private Market Specialist will reach out to you to discuss the process.

The legal team at EquityZen will work with you and the issuer to complete the transaction if there is a demand for your shares.

Read how EquityZen determines the price quote here.

Is EquityZen Safe/Legit?

Yes, it is a legitimate platform. The securities it offers are through EquityZen Securities LLC, which is a member of FINRA and SIPC.

Another line of security is that it only facilitates company-approved deals. It has also closed over 41,000 transactions so far, which can be a sign of a good track record.

However, buying alternative assets in itself is very risky. A good way to lower your risk would be to do careful research about the fundamentals of the company. Also, by diversifying well, you could lessen your risk.

Types of Account

Both individuals and institutions can invest at EquityZen. It also accepts self-directed IRA investments.

If you will be investing through a self-directed IRA, you can connect your Alto IRA or RocketDollar account to their platform. However, not all self-directed IRAs are accepted. If you are not using Alto IRA or RocketDollar, reach out to EquityZen first.

Customer Service

You can reach out to EquityZen through phone support, email, or chatbot.

Email: support@equityzen.com
Phone: (877) 490-6121
Chatbot: Visit the website

Visit the help page for the FAQ about EquityZen.

Customer Feedback

Here is some of the feedback that EquityZen has received regarding its offerings, starting with the positive ones from Trustpilot:

Great company. Do what they say they will. Have never had any issues with communication like others here say they did... but usually only people having an issue come here to post reviews. Bought Palantir in summer 2020 and had a 6x exit in 2021. Currently have Cerebras Systems and trying to get more. Also their prices are the best I've seen.
- M P, Mar 2024

Y'all got the job done! Thanks so much for the extra effort. In the time you were processing this offering, I received emails from your nearest competitors and they were less than what you had offered me. So I feel very good about the price I got too. Thanks!
- MuzzleOfBeez, Sep 2023

However, it does have some bad feedback as well:

My money distribution for exited portfolio all the way back from 2021 is still pending. Several attempts to contact anyone or someone at equityzen has been in vain. I am left with no choice but explore legal or federal government options. Please DO NOT invest with EquityZen!!!
- Ajit, Oct 2023

Have yet to be able to access an offering that was in 'high demand.' Only really poorly priced offerings (obviously in low demand) are available for us regular folks to purchase. Look elsewhere for high-quality company investment options.
- TD, Oct 2021

Despite the conflicting reviews, EquityZen still has a rating of Great (3.9/5) at Trustpilot, where 52% of the reviews were all 5-star.

How It Compares

EquityZen is not the only platform that offers exposure to pre-IPO companies. See how it compares against Equitybee or Sharespost:

Equitybee
Just like EquityZen, Equitybee offers retail investors access to the private markets. However, it's limited to funding employee stock options.

EquityZen also accepts stock options, but in addition to that, they source vested stocks directly from early shareholders or the issuing company.

The minimum for both is $10,000. It also has the same 5% fee upfront.[11] However, in Equitybee, investors pay an additional 5% fee following successful liquidity events. The fee structure in EquityZen is a bit complex due to the various products it offers, but there's no mention of carry fee for single company funds.

However, the main difference between the two is that at EquityZen, you have a chance of owning shares after the exit event, and in Equitybee you don't.

In Equitybee, you are merely funding the stock option to get exposure to that specific company. So after an exit event, you will only receive cash.

Learn more about Equitybee through this review.

Forge Global
Forge Global is more similar to EquityZen in the sense that it facilitates transactions between investors and shareholders to exchange shares of private companies.

Regardless of whether you are trying to buy or sell, you will be connected to a Forge Private Market Specialist who will assist from start to finish, including all legal processes required to facilitate the sale.

It also does both direct purchase and fund investing, just like EquityZen.

The fee is pretty simple. You just need to pay 5% for the transaction if above their typical minimum of $100,000.[12] You might need to pay more if it's lower than 100k, though, and additional fees may apply.

The main difference here between the two is that EquityZen offers a lower minimum investment option if you buy through a fund.

Bottom Line

Investing in private equity can be a good way to earn money. The offerings in EquityZen provide you with a lot of options, starting from small fund investments of $10,000 to $200,000 direct purchases.

However, there are a lot of risks involved in private equity and you could end up losing all your money. Before you decide to invest, make sure that you are comfortable with the amount of risk you are taking.

References

  1. ^ EquityZen. EquityZen by the Numbers, Retrieved 05/17/2024
  2. ^ U.S. Securities and Exchange Commission. Accredited Investor, Retrieved 05/17/2024
  3. ^ EquityZen. Investment Returns Retrieved 04/05/2024
  4. ^ EquityZen. For Investor Retrieved 04/05/2024
  5. ^ EquityZen. Express Deals, Retrieved 05/17/2024
  6. ^ EquityZen. What are the methods if I want to exit or cash out my investment?, Retrieved 03/16/2024
  7. ^ EquityZen. Why Invest in Private Markets?, Retrieved 03/20/2024
  8. ^ EquityZen. What are the commitments to investing in a deal? Is the Term Sheet binding? Retrieved 04/05/2024
  9. ^ EquityZen. How do I sell my shares on EquityZen?, Retrieved 05/17/2024
  10. ^ EquityZen. What are your fees for selling?, Retrieved 03/20/2024
  11. ^ Equitybee. The investment process, Retrieved 05/17/2024
  12. ^ Forge Global. Selling Private Company Stock FAQs: Does Forge charge a fee?, Retrieved 05/17/2024
EquityZen

Invest in Private Companies

  • Invest in pre-IPO companies through an EquityZen fund.
  • $10,000 minimum investment
  • Available to accredited investors only
Equitybee

Invest in High-Growth Startups

Equitybee gives accredited investors access to high-growth, VC-backed startups. By funding employee stock options, accredited investors can gain investment exposure to private companies at past valuations. In exchange for funding the options, you will receive a percentage of future proceeds from any successful liquidity events. Subject to availability. Investments involve risk; Equitybee Securities, member FINRA

Goldco

Free Gold IRA Kit

  • Up to $10,000 in free silver for eligible customers
  • Highest buyback price, guaranteed
  • Endorsed by Sean Hannity and Chuck Norris

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