[FUNDINNO Co., Ltd.] Survey of the secondary market of unlisted stocks. Diversifying needs and operational issues revealed through investor surveys
*FUNDINNO Co., Ltd.*
Press release: August 20, 2024
**
Survey of secondary market conditions for unlisted stocks.
Diversifying needs and operational issues revealed through investor surveys
FUNDINNO Co., Ltd. (Head office: Minato-ku, Tokyo, Representative: Yuki Shibahara/Oura
FUNDINNO (hereinafter referred to as the “Company”) is a secondary market for unlisted stocks for venture companies that has been provided since December 2021.
MARKET”, we have announced the results of a survey of investors participating in the market.
■Background
It has been two years since the launch of FUNDINNO MARKET, Japan’s first platform that allows you to buy and sell unlisted stocks over the Internet. 2022 11
“Startup Development 5” formulated by the government in April The market environment for unlisted stocks is an area that is expected to grow in the future, as the importance of the secondary market is mentioned in the 2020 Business Plan. Currently, the PTS*1 is considering deregulation regarding the handling of unlisted stocks, and as we enter a new phase, the market is expected to expand. In order to explore the possibilities of the unlisted stock market, our company
We conducted a survey with the aim of reporting the current status and results of MARKET and contributing to the development of the market. *1 Proprietary Trading
Abbreviation for System. A private trading system that allows trading like an exchange using a computer system operated by a securities company.
■Summary of research report
– Approximately 70% of investors are interested in investing in mid- to late-stage companies.
・Approximately 50% of investors request disclosure materials such as financial results. It can also be seen as a hint that information will be disclosed to a level that does not require audits or reviews. ・Currently, the mainstream operation mode for the secondary market is to use the “shareholder community” system.
・Transactions are becoming more diverse, with transactions triggered by fund redemption deadlines.
Status survey table of contents
* ■About the results of the investor survey*
* ■About the operation method of the secondary market for unlisted stocks in Japan*
* ■About FUNDINNO MARKET*
* ■Challenges in the secondary market for unlisted stocks*
* ■Deregulation policy *
■Results of investor survey
・Questionnaire overview
Research overview: A survey was conducted among investors
participating in FUNDINNO MARKET.
Survey method: Request via email, multiple choice
Survey period: August 5th to August 7th, 2024
Valid answers: 78 people
The first question is about the reason for participating in the secondary market. More than 50% of the respondents cited the need to add unlisted stocks to their portfolio.
The next question was about the stocks they would like to trade, and over 70% of respondents said they wanted middle-later companies. This is followed by well-known stocks, indicating a desire to invest in companies that have made some progress in the secondary market. The final question was about what level of information they were looking for when learning about a company, and about 55% of
respondents said they wanted something similar to a financial report. There were few requests for large-volume documents such as securities reports, or cost-related matters such as audits and reviews by auditing firms.
■About the operation method of the secondary market for unlisted stocks in Japan Currently, secondary trading of unlisted stocks is still conducted in Japan. The method is described below.
1. Negotiated trading
In this method, sellers find buyers and conduct bilateral
transactions. The problem is that it is difficult to find buyers. Cases where the buyer is a secondary fund for ventures and startups also fall into this category.
2.PTS
PTS is an exchange operated by a securities company. Currently, although it is legally possible to trade unlisted stocks on PTS, there are no cases in which this is actually done. To receive PTS
registration, as a Type 1 Financial Instruments Transaction Business, strict financial conditions and internal systems are required. In addition, although brokerage fees are a common business model, there are fewer transactions compared to transactions by listed companies. For this reason, it is difficult to balance operating costs, and it is thought that there are few companies participating, and in fact, there are only two operating companies in Japan.
3.Shareholder community
The shareholder community is a system run by the Japan Securities Dealers Association. A shareholder community is created for each stock, investors participate in that community, and the participating investors conduct transactions with each other through the operating company. When investors participate in the community, permission from the issuer*2 is required. FUNDINNO operated by our company
MARKET also uses this system. However, there are restrictions on when securities companies solicit and recruit investors, making it difficult to spread awareness. If you form a shareholder community, that fact will be posted on the Japan Securities Dealers Association’s website, and transaction status will also be recorded.
Looking at the statistical data regarding the current shareholder community system, *Table 1*
Nine securities companies handle approximately 50 stocks, and approximately 26,000 investors participate. The shareholder community system is a relatively new system established in 2015, but * Looking at Graph 1*, the number of operating companies and stocks has been gradually increasing since 2015. *Graph 2*
Here, the transaction volume is described. The transaction volume has increased since around 2021 and will reach approximately 1.4 billion yen in 2022, but compared to the primary market where funds are raised, it is still a system that is still under development. *2 An issuer is a company that issues or is issuing stocks. Venture companies and start-up companies.
*Table 1: Operating company, number of stocks, and number of investors of shareholder community*
Number of operating companies Total number of stocks handled Total number of investors
9 companies 48 25,889 people
*As of July 18, 2024, from the Japan Securities Dealers Association
*Graph 1: Number of shareholder community management companies and number of stocks handled*
*As of July 12, 2024, from the Japan Securities Dealers Association *Graph 2: Regarding trading volume in the shareholder community* *As of July 12, 2024, from the Japan Securities Dealers Association ■About FUNDINNO MARKET
FUNDINNO operated by our company
MARKET uses a shareholder community system and is also available on the Internet. The number of investors participating is increasing due to the improved convenience of the Internet and the use of investors who register with FUNDINNO. In addition, we are beginning to see sales offers from large investors. *
Table 2* shows that the number of registered investors is about 20,000, and about 80% of the entire shareholder community system is FUNDINNO.
We are participating in the shareholder community formed by MARKET. Also, although the number of stocks is 9, the total number of stocks is 14, and it can be said that it is characterized by the fact that they are created and disbanded from time to time.
Next, regarding the amount of transactions conducted on the Internet, see Table 3*
That’s right. Approximately 1,000 transactions were conducted, with a total value of approximately 230 million yen, or approximately 230,000 yen per transaction.
In addition, we are seeing an increasing number of inquiries regarding the sale of funds by investors whose funds have reached their maturity date. In this case, since the selling amount is large, the transaction size will be large. Details will not be disclosed, but FUNDINNO Cases have also occurred on MARKET, and in this case a large transaction of approximately ¥200 million occurred.
In addition, FUNDINNO
MARKET may end the handling of stocks. This is due to the dissolution of the shareholder community. The most common reason for dissolution is exit due to M&A, with three companies having M&A at the moment.
There have also been cases where shareholder communities have been disbanded in order to focus on IPO preparations, and it can be said that events associated with the growth of the company are behind the dissolution.
*Table 2: Stocks handled by FUNDINNO MARKET and number of investors* Number of stocks Total number of investors
9 20,559 people
*As of July 18, 2024 From the Japan Securities Dealers Association
*Table 3: Transaction volume conducted on the Internet at FUNDINNO MARKET* Number of transactions: 1,027
Total transaction amount: 234,000,000 yen
Average transaction amount: 227,000 yen
*As of July 24, 2024, according to our research (large bilateral transactions are not included in the calculation)
■Issues in the secondary market for unlisted stocks
In order to operate a secondary market for unlisted stocks, a system that stipulates rules for operating the market is required. Currently, it is possible to operate using the PTS and shareholder community systems. To use these systems, approval as a financial business is required, but for operating companies, the cost becomes a barrier to entry.
It is also necessary to improve the granularity of information disclosed by issuers. From an investor’s perspective, the more accurate information they have, the better, but for venture companies and startups, creating disclosure materials can be a huge burden. Additionally, it is common for companies that are still growing to want to keep information such as business results and stock prices to only those involved.
Regarding secondary trading of unlisted stocks, from a medium- to long-term perspective, for example, providing a means of converting major shareholders’ funds into cash at the maturity date, or providing a means of converting stock options for employees into cash. If this becomes possible, there will be a major advantage in that the timing of the IPO can be adjusted according to the intention of the issuer. However, in the short term, there may be little benefit to the issuer.
For secondary transactions, no funds enter the issuer. Under such circumstances, if the burden of operations such as information disclosure and exchange of stocks with transfer restrictions increases, there is a possibility that motivation to use the secondary will not increase.
However, if we are to set a goal of increasing investment in startups tenfold in the future through national policy, we need to solve current issues from an investor’s perspective. It can be said that generating investment returns and improving liquidity are unavoidable in order to grow the industry as a whole.
■Deregulation policy
Currently, in Japan, reform of the system is being considered in order to popularize the secondary market for unlisted stocks. Discussions are underway to revise the PTS system.
The current direction is as follows.
*Source: “March 2024 Explanatory Material for the Bill to Amend Part of the Financial Instruments and Exchange Act and the Act on Investment Trusts and Investment Corporations”
・Relaxation of regulations to increase the number of players involved in the operation of the secondary market for unlisted stocks. We are currently considering moving from a licensing system to a registration system and lowering the requirements for operating companies. -Reducing administrative burden on securities companies and issuers. ・Rules regarding information disclosure have been established, and information disclosure is limited to disclosure at the request of a limited number of investors, such as specified investors.
As for the shareholder community, there appear to be no plans for relaxation at this time. When compared with PTS after deregulation, it has the following characteristics.
・The issuer’s information disclosure materials are less burdensome compared to PTS.
– Regarding the secondary offering, as it violates the regulations for private selling, only 49 investors can be contacted.
That’s all
About FUNDINNO Co., Ltd.
Make this country’s venture market more open and democratic. Our mission is to eliminate the disparity in information and opportunities for all entrepreneurs and investors, and to “create a future where they can take on challenges fairly.” To provide a variety of options for entrepreneurs to take on challenges. And to deliver the support of investors to entrepreneurs. We will continue to transform towards a future that is open to ambitious people.
*●FUNDINNO*
FUNDINNO is Japan’s first stock investment crowdfunding service. It is a platform that matches companies that want to raise funds with fan investors who want to support their businesses.
https://fundinno.com/
*From the Japan Securities Dealers Association
https://market.jsda.or.jp/shijyo/kabucrowdfunding/toriatsukaigyousha/20200907114040.html ●FUNDINNO PLUS+
FUNDINNO PLUS+ is a service that matches companies that want to raise large funds with investors who want to make angel investments in startup companies.
https://fundinno.com/plus/specific_investor
●FUNDINNO MARKET
FUNDINNO MARKET is Japan’s first secondary market where you can buy and sell unlisted stocks over the Internet.
https://fundinno.com/shareholder_communities
●FUNDOOR
FUNDOOR is a business management platform for venture companies supervised by a lawyer. We free CXOs from complicated tasks such as shareholder management, shareholder meetings, financial management, and IR distribution, and support them on one platform.
https://fundoor.com
* -FUNDINNO Co., Ltd.-*
Address: 5-29-11 Shiba, Minato-ku, Tokyo
Representative Director: Yuki Shibahara / Manabu Oura
Total amount of capital and capital reserves: 8,508,637,024 yen (as of December 31, 2023)
Established: November 26, 2015
First Class Financial Instruments Business Operator Kanto Local Finance Bureau (Kinsho) No. 2957
Member association: Japan Securities Dealers Association
URL: https://corp.fundinno.com
* -About fees and risk information-*
The fees and risks of products handled by our services are displayed on our website.
https://fundinno.com/disclosure
)” and the contents of the documents issued before contract
conclusion for each project. Please use your own judgment when making investments.
Please note: This press release is a document to publicly announce FUNDINNO’s services and achievements, and is not prepared for the purpose of soliciting investment.