Synthetic Derivatives Reshape Private Markets
Javier Avalos, co-founder and CEO of Caplight, on building synthetic derivatives of private stock
Synthetic exposure would split private market buyers into two groups, operating partners and price takers. The operating partners, classic venture firms, would keep owning the actual shares and using board seats, recruiting help, and fundraising support to win deals. The price takers, hedge funds, pensions, and crossover investors, could express a view on Stripe or SpaceX through contracts instead of competing for scarce allocations on the cap table.
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This matters because spot secondaries are slow and messy. Even after buyer and seller agree on price, share transfer, issuer approvals, ROFRs, and settlement can drag on for weeks or months. A synthetic contract settles faster because what changes hands is economic exposure, not the stock certificate.
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The competitive pressure on VCs comes from institutions that want private returns but do not need the relationship role. The interview points to public investors, pensions, endowments, and large banks entering the asset class, while the broader private liquidity market has already grown around platforms like Forge, EquityZen, Nasdaq Private Market, and Zanbato to serve that demand.
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In practice, this makes venture look more specialized, not less. If financial investors can hedge, short, or gain upside without taking shares, the remaining reason to own the stock directly is to help the company. That pushes actual cap table spots toward investors who can assist with hiring, product, go to market, and later financing.
If this model scales, private markets start to resemble public markets in structure while preserving a venture lane for hands on investors. The likely end state is deeper price discovery and more risk management for institutions, with direct ownership becoming more valuable for firms whose real edge is company building rather than balance sheet size.