A recent article at WSJ at highlights the “explosion” of secondary marketplaces for sourcing deals, and buying and selling shares of private, venture-backed companies. The launch of InsideVenture in 2008 was the catalyst for the emergence of these secondary marketplaces.
“[As] opposed to large institutional investors or the companies themselves, looking to raise capital,” small shareholders who are looking to sell their shares – employees, ex-employees, founders, and early-stage investors like angels and Series A VCs – appear to be generating the most activity on these electronic marketplaces.
And for the moment, traditional secondary investors aren’t really threatened.
SecondMarket came on to the scene as a licensed broker-dealer and at the same time SharesPost – an online platform where buyers and sellers of private companies stocks can find each other – made themselves known.
Despite the fact that the future of online secondary marketplace businesses is not yet clear, SecondMarket boasts US$150 million in trades in the first 3 months of this year.
SharesPost itself has clocked up enough interest to register more than 16,000 members, with the average post coming in at the not-so-paltry US$1 million mark.
“In the first two months of this year, members were actively negotiating over US$279 million worth of posts.”
Traditional secondary players are normally on the rummage for bigger deals than those offered on these online marketplaces. Even so, Hans Swildens, principal of secondary firm Industry Ventures, said the likes of SecondMarket and SharesPost are a great exposure to new opportunities.
David Watcher, managing director of secondary firm W Capital Partners, said although he sees a market opportunity in online secondary marketplaces, “the firm finds most of its deals directly, not via marketplaces or agents.”
[These electronic exchanges are] in a business where personal connections are often essential. Wachter doubts that any part of private equity or venture capital lends itself to a truly liquid exchange.
“There’s just too much due diligence that’s required and a level of relationship that needs to take place before any deal can be done,” he said.
But SecondMarket head honcho Adam Oliveri is tipping his company and its cousins will “make inroads” in about 5 years, when the venture investor market comes to grips with a new way of doing things.
* For series, references are published in the last installment of the series.