Preferred stock made up 45 percent of all shares that changed hands on Nasdaq's trading venue for private companies' stock in H1 2016. With only 3 VC backed tech companies going public in the U.S. this year (Acacia, Twilio and Impinj) investors are looking for alternative ways to cash out.
"When you have an investor -- an institutional early stage investor -- say I have to close my fund, I have to get out, that's a real catalytic piece of pressure," Siegel said by telephone. "Those investors need to return capital to their own shareholders." Startups have dragged their feet in recent years when it comes to going public. The private funding market has been flush with cash, driving up valuations for startups. That's left technology companies hesitant to IPO for fear of having to stomach a lower value when facing more discerning public-market investors.