Part 2 in the Nasdaq Private Market series on private company secondary auctions.
In its simplest form, an auction is a process in which potential buyers place bids on assets or services with the intention of becoming the highest bidder and purchasing the asset or service for that amount1. Auctions can also be customized to match the dynamics of a transaction. Bids can be open or sealed, the winning price may end up being the second highest price bid, sellers may provide input on price per share and quantity willing to be sold, and more. Simple auctions typically take four different forms: English, Dutch, First Price, and Second Price auctions.
Simple Forms of Auctions
| Auction Type | Description |
|---|---|
| English | Price increases until one bidder is left, remaining bidder wins, and pays the highest bid amount2 |
| Dutch | Prices decrease until a bidder accepts the price, this bidder wins, and pays the price at acceptance3 |
| First Price | Each bidder submits a sealed bid, highest bidder wins, and pays the highest bid amount4 |
| Second Price | Each bidder submits a sealed bid, highest bidder wins, and pays the second highest bid amount4 |
Nasdaq Private Market (NPM) can run different variations of these price discovery processes, including auctions that mimic public offerings. Dutch auctions are conducted in a sealed manner whereby the clearing price of the secondary transaction is calculated after collecting all bids to determine the highest price at which the total projected amount of shares for sale can be sold. We have the ability to perform a modified Dutch auction processes in which both buyers and sellers enter bids and asks, respectively. Additionally, our technology platform can facilitate many different types of auctions, including First Price auctions for investor and founder blocks, and we can project sell-side demand prior to the auction through our seller indication of interest (IOI) collection process.
NPM can also customize auction programs to meet a company’s specific needs. Details such as timing, price collars, and the number of participants can be adjusted and tailored to adhere to company-specific requirements. We can also introduce additional buyers to a competitive bidding process to supplement any investors that the company may want to participate. Our network of institutional buyers are experienced in secondary transactions and many have dedicated funds ready to invest in private companies.
| Auction Type | How it works | Typical Use Case |
|---|---|---|
| Dutch | Bids and asks placed by buyers and sellers, one clearing price calculated for all participants | Companies looking to replace tender offers for secondary liquidity |
| Buy-Side | Sell-side demand projected by company, competitive bidding process by buyers followed by tender offer | High growth; many interested buyers; still adheres to tender offer guidelines |
| Seller IOI | Sellers enter asks for price per share and number of shares willing to be sold (prior to transaction) | Companies and executives who need to forecast demand for liquidity |
| English | Price increases until one bidder is left; remaining bidder wins and pays the highest bid amount | Investor or founder block sale; secondary sales <$10M |
| Custom + Combination | Customize price floor/ceiling, timing of bids/asks, seller eligibility, existing/new buyers, and more | All companies interested in secondary transactions |