In a buyer’s market, Vancouver-based FinTech startup Hiive wants to play matchmaker in secondary deals for privately held tech firms.
Led by a team with years of experience working in private equity (PE) secondaries, Hiive has built a venture capital (VC) secondary marketplace designed to centralize and automate the opaque and fragmented market for trading private, VC-backed company stocks.
“We concluded that Hiive represents by far the best attempt to date at aggregating liquidity in this opaque and fragmented market.”
– Salil Deshpande, Uncorrelated Ventures
After bootstrapping itself to cash flow breakeven and seeing a year of growth amid challenging VC and public market conditions, Hiive has secured its first external capital: $5.7 million CAD ($4.2 million USD) in Series A financing.
In an interview with BetaKit, Hiive co-founder and CEO Sim Desai spoke about Hiive’s origin and its progress to date, the state of the VC secondary market, and where Hiive plans to go from here. “We’re in that fortunate position that we’re not burning oodles of cash. We have the luxury of being able to use this cash to really accelerate our growth.”
Hiive’s Series A round, which closed in mid-September, saw participation from Uncorrelated Ventures, Splash Capital, Harmony Venture Partners, Hack VC, Agmen Capital, and Lending Club founder and Upgrade CEO Renaud Laplanche—the majority of which have already been using Hiive’s platform. Per Desai, the round was raised via a simple agreement for future equity (SAFE) at a $105-million CAD ($77-million USD) post-money valuation cap.
“Many funds are active secondary buyers, and with IPO markets being choppy or companies just choosing to stay private longer, there are many more secondary sellers,” Uncorrelated Ventures general partner Salil Deshpande said in a statement. “Having looked at the other options in the market, we concluded that Hiive represents by far the best attempt to date at aggregating liquidity in this opaque and fragmented market.”
Desai and Hiive co-founder and CRO Prab Rattan are familiar with this problem—they previously worked as managing director and vice-president, respectively, at Toronto’s Setter Capital, an investment bank focused primarily on the PE secondary market. In 2021, Desai and Rattan teamed up to found Hiive with Sarah Huggins—Hiive’s COO and general counsel, and also married to Desai—and Stuart Eccles, Hiive’s chief product and technology officer.
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Through its marketplace, Hiive matches buyers and sellers of stock in private, VC-backed firms, permitting them to discover pricing and trade shares without engaging a live broker. Hiive permits accredited investors, including venture capitalists, investment funds, family offices, and ultra-high-net-worth individuals, to buy and sell shares in late-stage tech startups directly.
A regulated securities brokerage, Hiive is a United States (US) Financial Industry Regulatory Authority (FINRA) member and operates as an alternative trading system that collects transaction-based fees. Hiive launched its VC secondary trading platform in Canada earlier this year after receiving registration across the country as an exempt market dealer, following its official launch in the US in July 2022.
“Ever since then, we’ve been really off to the races, and the response from the market has been that this has been exactly what is needed to make life a lot easier for market participants and bring a lot more efficiency and transparency to the market,” said Desai.
In the past 12 months, Desai claimed that Hiive’s marketplace has roughly sextupled its rate and volume of transaction completion. Since January, the startup’s headcount has grown from six to 45 employees. Desai is proud of this growth because it has come during what has been a particularly challenging VC market.
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“We’re in the biggest downturn for venture since 2008,” said Desai. “As you can see in the public markets, valuations have gone down quite a bit … Anyone that comes to our platform can see that the valuation or the pricing of private stock has correspondingly declined quite precipitously since the peak in 2021.”
As late-stage tech companies that had planned to go public have opted to hold out amid a largely frozen and unfavourable IPO market, some founders, employees, and VC backers have sought liquidity through other means, including secondary markets. For some VCs, this has come in response to limited partner demand for liquidity.
But as Desai noted, during market downturns, it typically becomes more difficult to close transactions as valuation expectations clash. “There’s still a significant bid-ask spread between buyers and sellers,” he added.
“We’re in the biggest downturn for venture since 2008.”
-Sim Desai, Hiive
According to PitchBook, there are currently far more secondary buyers than sellers, and many founders still aren’t willing to accept the discounts that buyers have been asking for. This helped fuel a decline in PE secondary dealmaking during the first half of 2023.
Per Hiive’s latest Private Market Report, sellers have been seeking a median 40 percent discount to their last round in their ask prices, while buyers have sought deeper, median 60 percent cuts via their bid prices.
Despite this mismatch, Desai said that Hiive has still been seeing 40 to 50 transactions agreed in principle through its platform on a weekly basis. Should secondary market momentum begin to pick up again following recent tech IPOs, Desai predicts even more growth for Hiive.
Hiive intends to use its Series A funding to accelerate its hiring, product development, and go-to-market efforts, as it looks to capture more of the fragmented VC secondary market, automate more steps in the trading process, and reduce the cost of transactions.
Feature image courtesy Hiive.