Synthetic Risk Layer for Private Stock
Javier Avalos, co-founder and CEO of Caplight, on building synthetic derivatives of private stock
The key shift is that late stage private stock is starting to behave less like a locked box and more like an asset class that institutions expect to actively manage. As more mutual funds, pensions, hedge funds, and crossover investors buy into big private companies, buy and hold stops being enough. They want ways to cap downside, generate income, and rebalance exposure without waiting months for a share transfer or an IPO.
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Private liquidity has already moved beyond a niche side market. Annual private share transaction volume grew from a few billion dollars around 2010 to about $30 billion by 2020, while only a small fraction of total late stage private equity value trades each year, leaving a large gap for more financial infrastructure to fill.
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The practical problem is settlement friction. In a normal secondary sale, price discovery may be fast, but closing can take weeks or months because of transfer restrictions, approvals, and paperwork. Synthetic contracts keep the economic exposure while settling much faster, which is why they fit institutions used to public market style workflows.
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The market is splitting into layers. Carta and Nasdaq Private Market focus on issuer controlled tenders and cap table rails. Brokers and marketplaces like Forge, Zanbato, and Augment handle sourcing and matching. Caplight is positioned as the risk layer, using pricing data and derivatives to let investors hedge, write covered calls, or buy downside protection on private holdings.
The next phase is a more complete private market stack, with better pricing data, faster execution, and portfolio tools like baskets and indexes on private companies. That should pull in more institutional capital and let companies stay private longer with less pressure for a full exit, because investors will finally have ways to manage risk instead of simply sitting on concentrated positions.