A rumored $60 million trade of Airbnb shares signals reboot of secondary market for private securities

• A roughly $60 million block of private shares in Airbnb recent traded hands among institutional investors, sources have told Business Insider.  
• The deal signals a possible pickup in activity of Airbnb shares after a rough few months in which the company's business and its valuation were hammered by the coronavirus crisis. 
• The sale is a sign of a wider increase in activity in the secondary market for private shares in companies that have not yet gone public as pricing stabilizes and buyers seek out discounts. 
• The private securities market has grown rapidly in recent years as longer IPO runup periods encourage secondary market activity.   
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A roughly $60 million block of stock in the struggling home-sharing giant Airbnb traded hands in recent weeks, according to two sources in the secondary market for private securities who were briefed on the trade.
The deal was handled by Zanbato, according to one of the sources, a trading platform backed by the venture capitalist Joe Lonsdale. Zanbato and a spokesman for Airbnb both declined to comment.
The deal would be typical for a multi-billion dollar company such as Airbnb on a yearslong path to a public offering. The proliferation of unicorns and lengthening runup periods to an IPO have driven dramatic growth in recent years in the trade of private securities.
That activity, however, was doused by the pandemic, which has caused share prices in an already-opaque market to tumble to uncertain depths, scaring off buyers and stymieing trades.
And Airbnb's business has been particularly hard hit by the pandemic, with revenue plunging by more than half as shelter in place orders have brought travel to a standstill. Earlier this month, the company announced plans to lay off 25% of its staff and the high-profile IPO that Airbnb was planning for this year is now on hold.
The $60 million Airbnb deal, which sources say was done between institutional investors, such as hedge funds, venture capital firms, or wealth management offices, signals a potential reboot of activity for the company's shares - as well as a wider thaw in the private securities market.
"When the coronavirus hit the US in mid-February, we saw the number of buyers drop materially to the point where we had three sellers for every buyer on the platform," said Jose Cobos, the chief revenue officer for Forge Global, a private securities trading firm that reports it has handled the sale of about $2.5 billion of shares in over 100 private companies since its founding in 2014. "But it's been amazing since April, which was one of our best ever months. The number of buyers compared to sellers shifted to two to one."
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Last month, Airbnb raised $2 billion in two rounds of funding from a group of prominent private investment firms to strengthen its financial position amid the virus crisis.
The first funding round, a $1 billion loan from Silver Lake Partners and Sixth Street Partners, came with warrants allowing the firms to purchase up to a 1% ownership interest in Airbnb at a valuation of $18 billion. That was more than 40% less than the $31 billion price put on the firm in its most recent previous fundraising round in 2017 and a fraction of the over-$50 billion valuation some bankers had envisioned for the company's IPO.
Experts in the trade of private securities said the debt deal provided a key benchmark for value, however, allowing buyers and sellers to price shares and restart trading in Airbnb's shares.
"There's the old saying that you never want to catch a falling knife, but that's not what's happening with Airbnb," said Cris Palacios, the president of Iron Edge Venture Capital, an investor in private securities. "We're not sure where the dust settles, but the smart money believes that right now is one of the best buying opportunities in the venture capital market in a long time."
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Airbnb stock on the secondary market has plunged in the wake of the virus crisis.
Private securities in a company are generally not homogenous and can come with different covenants depending on the fundraising round in which they were issued, creating varying values between shares. In general, the company's shares have careened from about $140 per share to $85, according to Jared Carmel, the founder and managing partner of Manhattan Venture Partners, a trading platform and investor in private securities, including Airbnb.
Another source in the secondary market estimated some shares have dipped even further, into the $70s. The sharp declines reflect how Airbnb's business, along with much of the rest of the hospitality industry, has been battered by the freeze on travel and tourism.
Trades of securities in private companies like Airbnb can require the company's signoff, although many investors get around the barrier by holding the shares in limited liability companies and trading the ownership of those LLCs.

Sellers have also been motivated by the dip

While it's easy to see how buyers could be motivated to transact to seize on discounts, Carmel said the economic dislocation has also prompted selling, including among startup employees with equity whose jobs were recently cut.
"Since March 11, there have been over 450 startups that laid off nearly 60,000 employees," Carmel said. "The secondary market has never been as crucial as it is today in the venture capital ecosystem. This asset class is integral in helping the next wave of startup entrepreneurs self-fund their dreams by providing the liquidity they need."
The private securities market has been growing for years as companies pass through longer maturation periods before going public, creating larger windows for shareholders and investors to trade in and out of companies.
Nasdaq's private securities trading platform, the largest in the industry, saw trading activity balloon to $12 billion in 2018 in the run-up to Uber's IPO, and $4.8 billion in 2019, more than double the amount of dollar volume done in total on its platform in the preceding four years. In the first quarter, its platform handled $1.4 billion of activity, a record start.
"The fourth quarter of 2019 and the first quarter of 2020 were incredibly busy," said Eric Folkemer, the head of Nasdaq Private Market, the exchange's private securities arm. "But that activity all preceded the crisis."
The exchange solely handles private securities transactions that are company-sponsored, a focus that allows it to handle far larger volumes of private shares than any of its peers, but also tethers its business to the willingness of companies to sanction trades. During covid, few, if any have sought to create trading windows to allow equity holders to liquidate stock.
"Companies have said they need to focus on their business, as they should, and liquidity was put on the backburner and the market dried up," Folkemer said.
That side of the market has begun to rebound too in recent weeks.
"We are seeing the market turn a corner with deal offerings growth of 20% for transactions that are expected to close in June 2020 versus June 2019," Folkemer said. "The market appears to be opening back up."
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SEE ALSO: Airbnb says it's going to focus on longer-term stays, but analysts worry its short-term rental roots will make it hard to grab a piece of the $18 billion market
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