Hello @Andy71uk, novel incoming 
I appreciate the sentiment, and in the context of our 
record-breaking crowdfunding raise I understand why there would be interest from the community in activities like this - after all, it’s just like investing in listed companies, isn’t it?
Well, it’s actually very different in the eyes of the regulator (and I believe with good reason), so let’s consider the reasons why:
- Liquidity - good liquidity in a financial instrument is the ability to realise it into cash quickly without taking a major hit on the price. For companies with many millions of shares in issue and investors ranging from retail customers to pension funds, there are lots of willing parties around ready to take part in the market place. Where there is lots of supply and demand (“volume in exchange-parlance”), many transactions occur every hour and it’s relatively easy to find someone willing to pay a price close to what you want to receive. To compare this with Freetrade for example, we are a shining example of crowdfunding at its best, but even we only have circa 3,000 shareholders. Of these, only a small handful would be willing to part with their shares any time soon (I’m guessing). As such, proper markets in unlisted shares would likely suffer from lack of volume and create wild price fluctuations not usually associated with retail-friendly investments. (This is not unlike smaller-cap - or arguably any - cryptocurrencies. Read up on price discovery for more).
- Transparency - stock market rules require companies to make public certain financial metrics, which are independently audited. This is time-consuming, expensive, and leaves directors and shareholders with a limited amount of privacy as to their wealth and other things, which is why small companies don’t need to file full accounts and indeed why many very successful business choose to stay private. It naturally follows that investing in companies who do not have to meet these requirements is higher risk because you know less about them.
- Pricing - drawing the two points above together, a) supply and demand create structural difficulties in achieving a given price in the future with any predictability, and b) less public information about the financial status of the company means the fundamental value of a share is difficult to pin down, essentially open to opinion. Taking any given price is, as such, inherently risky and again not usually associated with retail investment.
- Insiders - legislation protects market participants from abuse by ensuring those with the advantage of access to price sensitive information cannot act on it. Currently, the law only protects shares in listed companies, meaning a clear advantage is held by those individuals who are close to the company itself, or industry bodies like regulators.
The above factors are not insurmountable from a business model perspective, provided you have retail investors and a wider customer base willing to take the inherent risks and the platform makes them transparent. This, though, is the killer:
- Exchange regulation - Whereas Freetrade is a broker which sits on one side of the exchange, such as the LSE of which we are a member firm, what we have described above is actually the exchange mechanism itself. This is really what is lacking as far as a market in unlisted shares is concerned, rather than more brokers like Freetrade. Exchanges are a material step-up in regulatory terms (cutely known as ‘multi-lateral trading facilities’), and this means they are both technically challenging and expensive to run. This barrier to entry ensures that any proper share exchange will come with transaction costs, as the platform must cover its running costs.
Some regulatory arbitrage has been shown to be possible in trying to ensure that matching buyers and sellers does not amount to the definition of an MTF. Notably, bulletin boards are out of scope “because there is no reaction of one trading interest to another other within these systems - they do not ‘act reciprocally’”. The relevant definitions are clearly legally opaque, and it’s a high risk business strategy to try to be an exchange without being regulated as one, unless you concede major limitations in the product offering.
As such, some key differences between the initial act of crowdfunding and any secondary market transactions which make it so different in a regulatory sense are that you have liquidity in that the company itself is offering to issue shares at a given price at a certain time, and making available up to date information that you can reasonably rely on to be clear, fair and not misleading at that time. This is all essentially lost once the crowdfunding round is complete, so it’s a very different beast.
The AIM market provides a good middle-ground example between a fully-fledged stock exchange and lighter touch regulation where there are some minimum requirements in terms of transparency and restrictions on insider trading, but nowhere near the burdens of a full stock market listing. This market is known, perhaps unfairly, for allegedly shady directors’ deals and lack of liquidity. I can only observe that any market in unlisted shares would be a more extreme version, in many ways, for the reasons outlined above.
To end on a more positive note, something I am very interested in, and hope to write more about in the future, is the negative impact our natural instincts can have on investment returns. If you think about it, it’s a very un-human thing to hit buy when the price is decreasing and resist the temptation to hit sell when the price goes up. Investing an amount you can afford to lose in early stage unlisted companies, which essentially come with a lock-in period as there is no or limited secondary market activity, removes any temptation to sell too early or scare yourself into acting. Let your winners run!
@Viktor will tell you a story about selling unlisted shares too early 
(hindsight is a wonderful thing!)