Chairman Etan Butler discusses what makes the secondary market so important to liquidity and what future market growth looks like
FEBRUARY 28, 2022, New York, NY. As one of the leading Broker Dealers in the crowdfunding space, Dalmore Group is uniquely positioned to facilitate and support issuers who seek to leverage secondary markets. Having seen what is working well in the industry, Dalmore regularly provides the benefit of that knowledge to its clients, including the provision of access to secondary trading solutions through Alternative Trading Systems (ATS), such as PPEX ATS, operated by North Capital.
According to Etan Butler, Chairman of Dalmore Group, “we are seeing an increase in Regulation A+ issues seeking to incorporate secondary market trading functionality as part of their model. Up until now, we have seen a lot of secondary trading activity in connection with our fractional share ‘series issuers’ in the collectible, art, NFT and real estate space. But now we expect the trend to expand to other areas as issuers look to provide a path to liquidity to their investors while leveraging the benefits of secondary trading activity under Regulation A+.”
Butler credits The Jumpstart Our Business Startups (JOBS) Act, signed in 2012, for these opportunities because it loosened regulations to encourage the funding of small businesses and democratized investing in private companies for almost anyone over the age of 18. Through Regulation A+ and CF, investing in high potential companies at the earliest stage is no longer limited to accredited investors, funds, or high net worth individuals. The opening of these funding opportunities to early-stage companies gives them access to capital from the crowd in their primary issuance.
“We see more and more companies inquiring about secondary market opportunities at the earliest stages of their capital formation. In fact, companies working with Dalmore Groups’ secondary markets have completed 54,000+ trades from July 2021 to January 2022. The challenge is to have the right guidance and support of a Broker Dealer such as the Dalmore Group from day one, as decisions in how offerings are structured and brought to market in primary issuance can impact future secondary market opportunities,” explains Butler.
In analyzing what is fueling growth within the secondary market, Butler says that “a built-in secondary marketplace, accessible via the issuer’s own website and app is a natural progression for funding availability. The involvement of an ATS in the process gives investors an immediate path to liquidity and takes away an investor’s need to rely on a future liquidity event in order to exit their investments and potentially realize gains.”
James P. Dowd, CEO of North Capital agrees. “Prior to the passage of the JOBS Act, exempt securities transactions were called private placements and they were just that: private transactions organized as one-off, bespoke agreements between an issuer and investors or between a buyer and a seller. The ability to conduct public, exempt offerings has changed the landscape. Now issuers can solicit accredited and non-accredited investors using traditional advertising and digital marketing techniques. As a result, the overall direct market for exempt securities has grown exponentially. It is only natural that this growth would lead to a demand for liquidity via the secondary market.”
Looking ahead to where the secondary market is going, Butler feels that “as more and more companies see the opportunity and power of raising capital from the crowd, including their own audiences and customer base, more issuers will focus on both Regulation A+ and Regulation CF offerings. We believe that the increased supply from early-stage companies will be met with the increased demand from investors. The growth in crowdfunding activity in primary issuance should also lead to the expansion and growth of secondary market opportunities.”
By expanding access to capital for issuers, companies like the Dalmore Group and North Capital enable more small businesses to grow, which leads to more job creation and greater economic activity. “Overall, it is great for the economy and for entrepreneurs who have traditionally lacked access to capital. Markets are a wonderful thing if they are free, fair, and transparent. Open markets encourage participation, which is good for both business and investors. I know that not everyone agrees with this view, which I have advocated for two decades, but we are betting that we are correct, and the naysayers are wrong,” says Dowd.
Butler agrees. “Providing liquidity to investors in early and mid-stage companies is very exciting. In the past only later stage companies provided a credible path to liquidity to their investors. Now, even the smaller guys can compete – and that’s a very good thing.”
Dalmore Group specializes in helping companies raise capital online at scale through Regulations A+, CF and D, and has onboarded over 200 Regulation A+ issuers since 2019. Learn more about how Dalmore Group is leading the way for primary issuance and secondary market trading of private securities at www.dalmorefgstg.wpengine.com and keep up to date on the latest company news and information directly via Dalmore Group’s LinkedIn page.
ABOUT NORTH CAPITAL
North Capital Investment Technology provides comprehensive digital platform technology, brokerage, and advisory solutions for private and other exempt securities, supporting issuers, broker-dealers, funding platforms, and investment advisors. Through its registered broker-dealer North Capital Private Securities Corp., the firm offers technology-enabled escrow, streamlined investor vetting and compliance management (KYC/AML, suitability and accredited investor verification), transaction processing, online payments, clearing, custody, and secondary trading through the PPEX ATS. For more information, visit www.northcapital.com.