Liquidity for start-up investments: the Tokenize.it secondary market
IPOs are becoming less common, and exits are taking longer than ever before. According to Jefferies, the global secondary market for start-up investments reached a record volume of US$162 billion in 2024 – a 45 per cent increase on the previous year. This figure speaks volumes: not only about the growth of a new market segment, but above all about the fact that more and more investors are no longer willing to wait for a traditional exit.
This issue is particularly relevant for business angels in Germany. Those who invest early bear the highest risk in the cap table – and at the same time have the fewest options when liquidity is needed.
This is precisely why the Tokenize.it secondary market for virtual shares was recently launched. This blog post explains how it works, what sets it apart from previous approaches – and why, particularly with a view to the next feature, syndicates, it will become a key building block for greater liquidity in the angel ecosystem.
How virtual shares work
To understand the secondary market, it is first worth understanding the form of equity being traded: profit participation rights, also referred to as “virtual shares” in the Tokenize.it context.
Profit participation rights are not a new instrument – they have existed in German law since the 19th century and offer considerable contractual flexibility. At Tokenize.it, they were structured in collaboration with the law firm CMS in such a way that investors are economically on a par with shareholders: they participate in dividend payments and exit proceeds, but do not receive voting rights. Put simply: like a share without voting rights. Because the acquisition of profit participation rights does not establish shareholder status, investors do not appear in the commercial register, and there is no need for a notary appointment upon joining. At the same time, the investment process is entirely digital.
For anyone who values having the option to become a shareholder, there is the put option. If the investor has invested above a sum defined by the start-up, they have the option to surrender their profit participation rights and receive the same number of shares in return.
The settlement process takes place entirely in the background via the Ethereum blockchain: each profit participation right is represented there as a token. No blockchain knowledge is required of users. This technical foundation is the key enabler for the next step: trading these tokens on a secondary market.
The Tokenize.it secondary market
The Tokenize.it secondary market is open round the clock – with no fixed trading windows. Investors can offer their virtual shares for sale at any time or acquire existing positions. Settlement takes place on-chain via Ethereum, with payment via SEPA Instant. The fee structure is deliberately kept simple: sellers pay a two per cent transaction fee per completed trade; there are no set-up fees, no subscriptions and no hidden costs. The market is currently aimed at investors from Germany and Austria who have completed the onboarding process, including identity verification and details of their investment experience.
Founders retain control: they can decide whether virtual shares in their company are tradable at all. This is an important safety net – but also a sign of how Tokenize.it views the secondary market: not as uncontrolled trading, but as a transparent liquidity option in agreement with the start-up.
One aspect that is often overlooked in the discussion about secondary markets: it is also good for the start-up when an investor sells their shares. Those who sell make room for someone who actively believes in the company and is prepared to invest at the current price. As the profit participation rights do not carry any voting rights, nothing changes for the start-up.
Outlook: Syndicates and genuine liquidity for existing angel investments
In the short term, trading volume on the secondary market will remain modest – this is to be expected from a realistic perspective. There must first be a sufficient number of profit participation rights available on the platform, and the ecosystem is still under development. However, the strategic value of the feature becomes apparent with the next major component Tokenize.it is currently working on: syndicates. Through syndicates, angels acting as syndicate leads can allow other investors to participate in their deal flow by acting exclusively as tipsters for them and receiving a carry fee in return. They can set the rules for membership of their syndicate themselves.
However, a kind of secondary syndicate can also be established. The idea behind this is that business angels who hold actual limited liability company (GmbH) shares in a start-up should, in future, have the option of converting these into profit participation rights. This requires a one-off appointment with a solicitor. What follows is the crucial difference: the profit participation rights are freely tradable on the secondary market, without further notary appointments or shareholder resolutions, and can even be sold to a large number of retail investors.
Through syndicates, these positions can then be sold to several new investors – a single angel investment is thus split into smaller tranches and passed on to a network of buyers. This creates genuine liquidity from investments that would otherwise be tied up until an exit – thereby solving a structural problem that business angels in Germany have been familiar with for years: too little exit liquidity, too much capital tied up for too long, too little scope for new investments.
Conclusion
Those who invest early bear the greatest risk – and deserve more flexibility in return than the market currently offers. The Tokenize.it secondary market is a first concrete step in this direction: transparent in its fees, compliant with regulations and accessible around the clock. With syndicates as the next feature, it will become a genuine liquidity tool for business angels – regardless of when the next exit comes.
Interested in trying out the secondary market? You can create a free Tokenize.it account here.
Interested in creating a syndicate and monetising your own deal flow? Register now and be the first to know when the feature is launched!
We are more than happy to welcome tokenize.it , and the whole team, as new corporate members at BACB.
We are looking forward to a productive and awesome corporation.
