Right of First Refusal show significant uptick on Forge Markets
In this short clip from our Q3 Forge Investment Outlook webinar, Andrew Alden, Senior Director of Quantitative Analytics, shares insights on how ROFR rates are increasing on Forge Markets.
Learn more about “The Great Reset” and find additional private market data in the Forge Investment Outlook report.
Andrew, let's move on from valuations a little bit and talk about one of the more idiosyncratic elements of the private market, which is the presence of the right of first refusal or ROFR. Essentially, when a private company shareholder looks to sell their stock to a third-party buyer, the company typically retains a right of first refusal for a set period of time, around 30 days, to step in and buy the stock back at the price, negotiated by the buyer and the seller.
If the company waves that right, the seller can proceed to sell that stock to the buyer at the negotiated price. And Forge tracks this metric very closely as a result of all the trading that takes place on our platform. Now, we have access to pretty unique data here to help illustrate the state of private markets through the lens of how often rights of first refusal are being exercised. So, what is this data telling us about the market right now?
I love this question.
For a few months now, there's been talk internally here at Forge, and externally as well, that we're seeing a pickup in the number of companies ROFRing trades. So, I was very interested to dive into this data a little bit deeper.
And sure enough, what we're seeing is a significant uptick in the percentage of companies which are ROFRing trades in Q1. And just a quick side note on why Q1 and why there's no Q2 data here. It's because settlement takes time. So, a lot of the Q2 trades are still in the midst of the settlement process.
And we won't have the complete ROFR picture on those until sometime in Q3. So, in this Q1 period, it's trades executed in Q1, but settling in Q1 or into Q2. So, what does all this mean? More than anything, I think it means insiders believe there's value at current prices. And this could be for a couple of reasons. The company could be trading cheaply relative to the opportunities the insider is seeing, or it could be that they know of upcoming plans to unlock shareholder value.
Such as an exit or new funding round at a more attractive terms. And they want to buy shares ahead of that event. So, ROFRs are often seen by investors as a bullish indicator on a company. Does this mean a company is inherently cheap relative to others in the market? No, not necessarily. We actually looked at that as well. Although it's not presented in this report, companies that ROFR are not doing it at materially cheaper prices than other companies are trading at. They're most often doing it at the going fair market price is just that insiders are seeing value at that price.
Please Read These Important Legal Notices & Disclosures
The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge Global, Inc., Forge Securities LLC or any of its affiliates (collectively, "Forge") to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s) and purchase agreement and will be subject to the terms and conditions and risks delivered in such documents.
To the extent information about or defining specific terms is provided herein, Forge makes no representations as to its accuracy and has no duty to update such information. Such information is based on Forge’s experience and the meanings and connotations of terms as Forge typically uses and interprets them. Others may construe such terms differently, and you should do your own research and consult with financial, legal and tax professionals regarding any such concepts included herein.
This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities LLC do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services. Securities referenced in this article may be offered by Forge Securities LLC, member FINRA/SIPC.
Forge Securities LLC is a wholly owned subsidiary of Forge Global, Inc. Certain affiliates may act as principals in such transactions. Forge Data LLC is an affiliate of Forge Global, Inc. and Forge Securities LLC.
Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Past performance Is not indicative of future results.
Please Read These Important Legal Notices & Disclosures
The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge Global, Inc., Forge Securities LLC or any of its affiliates (collectively, "Forge") to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s) and purchase agreement and will be subject to the terms and conditions and risks delivered in such documents.
To the extent information about or defining specific terms is provided herein, Forge makes no representations as to its accuracy and has no duty to update such information. Such information is based on Forge’s experience and the meanings and connotations of terms as Forge typically uses and interprets them. Others may construe such terms differently, and you should do your own research and consult with financial, legal and tax professionals regarding any such concepts included herein.
This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities LLC do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services. Securities referenced in this article may be offered by Forge Securities LLC, member FINRA/SIPC.
Forge Securities LLC is a wholly owned subsidiary of Forge Global, Inc. Certain affiliates may act as principals in such transactions. Forge Data LLC is an affiliate of Forge Global, Inc. and Forge Securities LLC.
Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Past performance Is not indicative of future results.