private investments in the secondary market
DESCRIPTION
Evan Vitale talks about private investments in the secondary market. He discusses how companies are now including clauses where they can veto trades (even those in the secondary market) because they are seeking reputable organizations or individuals with expertise in their field. Companies have this option because the secondary market does not bring any funds to the company.TRANSCRIPT
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Private Investments in the Secondary Market
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SecondMarket con5nues to dominate secondary trading volume
during 2014.
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The company has already traded almost four 5mes more in 2014 than it had for all of the previous year.
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The 900 million dollars that SecondMarket has traded in
secondary stock sales con5nues to rise as the year wears on.
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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.
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It’s also double the volume of the 2011 peak -‐ when a variety of internet companies (such as
Facebook and LinkedIn) went public.
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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.
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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.”
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Many are aTribu5ng the Jumpstart Our Business Startups Act of 2012 as
a reason for why the secondary market has been so ac5ve.
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The act helped rise the number of shareholders in a private company, increasing its threshold from 500
shareholders to 2,000.
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By also expanding investors ability to buy private company stock, the JOBS Act helped startups raise more
money.
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However, companies started placing restric5ons on secondary trading by placing a right to veto trades in the
contracts.
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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.
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This limits the startup employees’ ability to cash in on shares while also shuZng out retail investors.
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Since the secondary market doesn’t raise capital for startups, they can
afford to be picky.
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These companies are choosing buyers who are respectable
ins5tu5ons, ac5ng as a “stamp of approval” for the startup.
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They are also looking for shareholders who will offer
valuable, unique advice to the company.
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As a result, the most desirable technology companies are the hardest for the average Joe to
access.
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The ones that are accep5ng anyones money are the companies that are
young and desperate.