Want to Learn About How Secondaries Work? I Chatted With Sim Desai, Founder of Hiive, to Give You a Masterclass on Secondaries

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Sim Shares His Expertise on How Secondaries Work and How He Convinced Investors to Give Him $4.25M in a Down Market

In this episode, I talked with Sim Desai, Founder and CEO of Hiive, a platform to buy and sell secondary shares that recently raised $4.25 Million.

Sim and I give a masterclass on the secondary market. If you’re looking to gain an insight into that world, this episode is for you. Sim also talks about his switch from a career in private equity brokerage to changing how people trade private company secondary shares with his platform, Hiive. He wants to make trading easier and clearer for everyone by using automation and transparency.

Hiive works to improve the buying and selling experience in a market that's usually not very transparent. Sim explains the regulatory hoops you’ve got to jump through to list your shares and how Hiive adds value and streamlines processes in the secondary market.

He also shares his initial fundraising adventure and the strategic thinking behind it while discussing the ups and downs of Hiive’s fundraising journey and what they learned along the way.

Here's what you're in for:

• 00:00 Intro
• 00:37 Sim's background in private equity and Hiive's creation
• 04:38 Typical companies in the secondary market
• 07:05 Who are the typical buyers in secondary markets?
• 12:53 How Hive reduces transaction fees
• 14:39 How to list in the secondary market
• 17:42 How Hive optimizes secondary market transactions.
• 21:16 Raising capital for Hiive
• 26:48 Challenges and outcomes of Hive’s fundraising journey
• 32:53 Market overview and predictions for the secondary
• 36:40 Advice to founders 

ABOUT SIM DESAI

Sim Desai combines extensive industry experience with a forward-thinking approach to reshape the secondary market. His background in private equity brokerage at Setter Capital laid the groundwork for Hiive, which simplifies transactions and increases transparency for private company shares. At Hiive, Sim leads initiatives that challenge traditional market processes, emphasizing the importance of technology in providing liquidity and fair pricing.

Connect with Sim Desai on:

• Hiive.com
• Linkedin
• Twitter

Watch it Now

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Unlocking the Secondary Market: Sim Desai, CEO of Hiive, on Liquidity

Publishing Date: April 25, 2024

Page URL: https://blog.thunder.vc/sim-desai

Video URL: https://youtu.be/pVYO8R43JEU

Hiive Website: https://www.hiive.com/

Full Transcript 

Jason Kirby: No, this is fine. That's whatever you're comfortable with. All right, so we'll go ahead. We're live now, so I'll go ahead and do the recording. Hello everyone. Welcome back to Fundraising Demystified. Today we have Sim Desai with ]

Jason Kirby: No, this is fine. That's whatever you're comfortable with. All right, so we'll go ahead. We're live now, so I'll go ahead and do the recording. Hello everyone. Welcome back to Fundraising Demystified. Today we have Sim Desai with us, founder and CEO of Hiive. Welcome to the show today.

Sim Desai: Yeah, okay.

Sim Desai: Thanks Jason, it's great to be here.

Jason Kirby: Now, I'm excited to have you. You built an incredible product. You have a great background that led you to the development of solving a problem for the secondary's market, but for the audience sake, it'd be great for you to share a little bit about you, your background and what you're doing at Hiive.

Sim Desai: Absolutely, so I come from the business side of the equation. Many founders are technical founders, but I'm coming from the domain expertise side. I spent 15 years in brokerage of private equity investments, and we call that the secondary market. The secondary market is effectively when an existing investor in something is reselling it to somebody else.

And so, as opposed to investing directly in the company or directly in the fund. And so, that's what I did for many years and around the 20 teens period, the sort of the trading of shares in private companies, especially venture backed companies, started to become a thing.

It's kind of a funny story about Facebook, which sort of accidentally became a public company because they exceeded the limit to the number of shareholders that a private company was allowed to have, which at that time was 500. Then the legislature passed a law that enabled private companies to have more shareholders and they increased the limit to 2,000. That was what actually was sort of a...

a major catalyst for the advent of sort of the modern VC secondary market as we know it today. So because private companies were able to have more shareholders, they were able to stay private for longer. I mean, that's one of the things that enabled them to stay private for longer. And that's what created sort of enough shareholders to create kind of almost like trading of these securities. And

So, you know, over the course of my time at my former firm, Sutter Capital, where I started that business, we realized that there was sort of a real opportunity to potentially kind of automate the secondary market for venture. You know, investors and buyers and sellers needed like a, you know, one central meeting place. You know, at that time, there was a number of different brokers running around the market with Excel spreadsheets and the like.

Sim Desai: We wanted to centralize that into one place. We also thought that the transparency into market pricing fixed fees and then automation of the process all would sort of add tremendous value for buyers, sellers and the private companies themselves—the issuers—because right now the way the traditional market works, each of these secondary transactions is kind of bespoke. It means a lot of work for the company on the back end for completing that transaction.

One of the goals of our platform is not just to centralize the market and make it more transparent but also to automate that transaction process so that companies don't have to spend so much time. In fact, they can be almost completely hands off in the process other than obviously approving the transfer which is the right that all companies have over secondary transactions.

Jason Kirby: So let's unpack that a little bit more. I think I do want to talk about the company and the product a little bit more and what your fundraising experience is, but I think for our audience today, they might not be fully aware of what a secondary's transaction looks like. So it'd be good to kind of have a little bit of an education on this front and kind of explain to founders and VCs that maybe haven't been in the game for 10 years where secondaries start to become a reality.

Later stage companies. So what do you typically see as the profile of a typical company that opens up the door for secondary transactions to happen? And kind of how, what are the economics of a secondary transaction?

Sim Desai: The companies that typically trade in the secondary market—and certainly those that are most amenable to a platform like Hiive—are late stage companies. First of all, we refer to those companies as issuers because they're the issuers of the stock.

These are late stage companies, typically like a Series C—at least B, but typically a C or later—venture backed by high-quality investors. Usually they need to have been around for a while in order to have shareholders who are ready to start monetizing their holding. And they need to have a somewhat diffuse

shareholder base, meaning that there's got to be a decent large number of shareholders because if there are not a large number of shareholders, the opportunity to create a market around that stock is more limited. But provided those conditions are in place, then typically these companies can actually create a relatively liquid market for their stock.

Jason Kirby: And so that's kind of the value of this is because, you know, back in the 90s and early 2000s, companies went public so early and much lower valuations, the public could get access to it. And private markets, private companies are now staying private till they're tens of billions in value like Stripe, who's just refusing to go public. And secondary is really the only way to get access and/or to generate liquidity for early employees, early investors.

And so basically what you're opening up is this opportunity for that transaction to be a little bit more transparent and seamless through a platform as opposed to the more opaque broker-dealer experience where it's like, oh, I know a guy that can help facilitate this and I got some spreadsheet knowledge here. So opening up this market to a broader audience, but from an investor side—who's buying these shares? Are these retail traders? Family offices? Institutional buyers? Who's typically coming in on the buy side?

Sim Desai: When we look back on the secondary market decades from now, we'll probably see this as a pretty formative stage. It's really underdeveloped. Today, the overwhelming majority of buyers in this market are funds. Those could be VCs—especially later-stage VCs—who are interested in adding exposure to more established, mature companies that are still startups. Then you have hedge funds. There's an entire class of funds called secondary funds set up to do secondary transactions—purchasing stock from existing shareholders. Many of those funds also do primary investments. There are also ultra high net worth and family office groups buying. I think those types of buyers will proliferate a lot as time passes, but today that's where it's concentrated.

Jason Kirby: Gotcha. And what's kind of the economics of these trades? Because they are not public, they're not actively traded. How is a price ultimately set and what are the fees associated with those types of transactions?

Sim Desai: Price setting is one of the key pain points we're solving. This is an illiquid and infrequent market. When you can't just observe a market price, price discovery is the key challenge—especially for a seller.

Our platform helps by creating one central place where buyers and sellers can place orders and effectively create an order book for that market. Sellers—especially individuals—tend to be price takers. They want to maximize price but they're not typically doing a full underwriting exercise to determine fair value. They're looking for price discovery.

On the flip side, buyers tend to be more sophisticated funds that have the ability to gather information about these private companies. They bring resources to bear to identify a price. Often a market for a security starts when a buyer establishes a price and posts it on the platform—say a bid to buy up to $10 million of stock. Sellers can then create their own listing or simply accept that posted bid.

The chicken-and-egg problem is getting the initial orders in. Once there are bids and listings, others get some price discovery by seeing an established price and recent transactions. A seller can then post at the current market price.

Fees range based on transaction size. Small transactions (even sub-$100k) may have commissions around 5% plus administrative fees. Larger institutional trades can come down to 1% or even lower depending on size. We also offer heavily discounted fee rates when we work with the company directly to make it more economical across the shareholder base.

Jason Kirby: Now, I think that makes a lot of sense… there’s also a process: employees or investors can’t just sell—companies must approve transfers. What does a company have to do to list shares for a secondary transaction?

Sim Desai: We're a FINRA member and we operate an Alternative Trading System (ATS) registered with the SEC. That enables us to post a board where buyers and sellers of a certain stock can express interest. Shareholder agreements generally say the company/board must approve a transfer. For a transfer to be approved, there must be a proposed transfer.

Many companies are passive until there's a trade to submit—so we can have active markets where a buyer and seller meet, then we go to the company and propose a trade (even if the company hadn’t heard of Hiive yet). Some companies are happy with that process. Others take a more controlled approach: pre-approving all buyers and offering liquidity once in a while (e.g., an annual tender offer). In that case, approval and process design happen upfront before any marketing. So there are two paradigms: approval after a match, or approval before the process starts.

Jason Kirby: You built this product for a reason—after years of doing these transactions at Sutter Capital. What was that experience and what’s the benefit of bringing this into venture with a product?

Sim Desai: The traditional approach was lots of phone and email. That continues to an extent—this market will never be fully autonomous; humans will always be involved. Our innovation is productizing the market interaction: one central place where buyers and sellers go, instead of many one-off broker calls.

There are successful traditional broker-dealers (e.g., Forge Global and others) operating without a true marketplace product. That works, but we saw an opportunity to add efficiency and value by giving people a transparent meeting place. On a Hiive page you can see if there’s a real bid, at what price, how much they’ll buy, and transaction history—plus fixed fees. Historically, one-off fee negotiations could happen late in a deal; with Hiive, fees are transparent and fixed.

Jason Kirby: Let’s talk fundraising. Building product takes money. Walk us through starting Hiive, realizing you needed to raise, how much you raised, etc.

Sim Desai: One advantage we had: we weren’t inventing an entirely new service. We took a clearly valuable brokerage service and moved it online into an automated marketplace. As users adopted the tech, we could still deliver the underlying service and generate revenue from day one. That gave us flexibility—we weren’t desperate for cash to operate.

We went to market in spring 2023 because to really scale we needed to build product quickly, spend significantly on marketing/education, and offer fee breaks to maximize liquidity (shifting focus from short-term revenue to long-term enterprise value and marketplace adoption). Running a broker-dealer isn’t cheap, so subsidizing fees requires capital.

Another strategic reason: our customers and potential investors are often the same (VCs). Validation from customers as investors helps with PR and alignment: shareholders are more motivated to use you.

Jason Kirby: What did the process look like and how much did you raise?

Sim Desai: We started around March 2023 and finalized terms August/September. We raised roughly $4.25M USD in a SAFE at a $77M valuation cap. It took time because we didn’t go super broad—we were selective—and because some investors were skeptical about TAM, issuer adoption, and our revenue profile (less like recurring SaaS, more like chunky marketplace revenue). We needed believers who understood the underlying growth and business type.

Jason Kirby: How many investors did you talk to?

Sim Desai: We approached ~100–120; had ~30–40 actual conversations; and ended up with about five or six investors. We intentionally avoided a single 20% lead—spreading smaller checks across more strategic investors maximized value (each is a potential customer with their own VC networks).

Jason Kirby: Markets: you raised in a tough time. How are you seeing secondaries now and over the next 6–12 months?

Sim Desai: With the end of free money, cost of capital rose. Early-stage value is predicated on future growth, which must be discounted at a higher rate now—so required returns are higher. SaaS adoption slowed, and many startups sell to other startups, so they’re doubly hit. 2023 looked like the low point for valuations, liquidity, and wide bid-ask spreads. In January we saw average prices on the platform turn up and bid-ask improve, but prices are still cyclically low and at significant discounts to last rounds.

Jason Kirby: For those with cash, there’s opportunity, though liquidity can be tight. Best way for investors or companies to reach you?

Sim Desai: Email me directly: simsim at hiive dot com (h‑i‑i‑v‑e dot com). And visit hiive.com.

Jason Kirby: Any parting advice for founders or secondary-market investors?

Sim Desai: The secondary market is in early innings—so is venture broadly. As liquidity and adoption improve, secondary markets can help benchmark primaries; the line between primary fundraising and secondary trading will blur, broadening capital pools. I encourage companies to foster liquidity in their stock—done within regulatory requirements, the benefits are significant and common objections aren’t fundamental.

Jason Kirby: Thanks for watching!

Sim Desai: Absolutely. Thank you so much for having me on. I really appreciate it.

Jason Kirby: That was my pleasure.

Perfect.

FAQ: Secondary Market & Liquidity