private investments in the secondary market

Private  Investments  in  the  Secondary  Market  

SecondMarket  con5nues  to  dominate  secondary  trading  volume  

during  2014.  

The  company  has  already  traded  almost  four  5mes  more  in  2014  than  it  had  for  all  of  the  previous  year.  

The  900  million  dollars  that  SecondMarket  has  traded  in  

secondary  stock  sales  con5nues  to  rise  as  the  year  wears  on.  

Secondary  market  transac5ons  this  year  are  expected  to  total  over  $17  billion,  a  number  that  is  nearly  30  5mes  greater  than  the  secondary  

volume  from  a  decade  ago.  

It’s  also  double  the  volume  of  the  2011  peak  -­‐  when  a  variety  of  internet  companies  (such  as  

Facebook  and  LinkedIn)  went  public.  

SecondMarket  has  carved  out  a  niche  in  the  trading  world,  

facilita5ng  the  trades  of  private-­‐company  stock  —  mostly  shares  that  

are  pre-­‐ini5al  public  offering.  

Barry  Silbert,  founder  and  chairman  of  SecondMarket,  says  that  he  

“wouldn’t  be  surprised  if  turnover  among  its  private  stocks  was  similar  to  turnover  in  some  publicly-­‐traded  

stocks.”  

Many  are  aTribu5ng  the  Jumpstart  Our  Business  Startups  Act  of  2012  as  

a  reason  for  why  the  secondary  market  has  been  so  ac5ve.  

The  act  helped  rise  the  number  of  shareholders  in  a  private  company,  increasing  its  threshold  from  500  

shareholders  to  2,000.  

By  also  expanding  investors  ability  to  buy  private  company  stock,  the  JOBS  Act  helped  startups  raise  more  

money.  

However,  companies  started  placing  restric5ons  on  secondary  trading  by  placing  a  right  to  veto  trades  in  the  

contracts.  

This  changes  the  landscape  of  the  secondary  market  as  private  companies  are  hos5ng  the  

secondary  transac5ons  -­‐  seZng  their  own  price  and  choosing  those  

who  can  buy  the  stock.  

This  limits  the  startup  employees’  ability  to  cash  in  on  shares  while  also  shuZng  out  retail  investors.  

Since  the  secondary  market  doesn’t  raise  capital  for  startups,  they  can  

afford  to  be  picky.  

These  companies  are  choosing  buyers  who  are  respectable  

ins5tu5ons,  ac5ng  as  a  “stamp  of  approval”  for  the  startup.  

They  are  also  looking  for  shareholders  who  will  offer  

valuable,  unique  advice  to  the  company.  

As  a  result,  the  most  desirable  technology  companies  are  the  hardest  for  the  average  Joe  to  

access.  

The  ones  that  are  accep5ng  anyones  money  are  the  companies  that  are  

young  and  desperate.