November 01, 2013
Developments in the Private Secondary Market
Posted by Usha Rodrigues

Tuesday's WSJ had an article on changes in the private secondary market.  Long time readers know that I've been interested in this space for quite some time.  Here are some nuggets, plus my take:

  1.  Auction volumes are way down, and the number of companies whose shares are available for purchase is, too.
  2. Post-Facebook IPO, SecondMarket has laid off 40% of its staff
  3. The other major player, SharesPost, has created a joint venture with Nasdaq OM and will launch Nasdaq Private Market later this year.
  4. Companies are looking for mutual fund and hedge fund investors that can aggregate individual investors (think Goldman's failed pre-Facebook investment vehicle)

None of this surprises me.  (Indeed, here's a little prescience for you)  The puzzling thing in the wild west that was the pre-Facebook IPO secondary market was that companies allowed so much trading of their shares--trading that inmost cases required their explicit permission.  According to the WSJ, after Facebook's IPO debacle, companies woke up to the risks: "Firms feared online trading could bring in too many investors, lead to speculative swings in share price affecting companies' stock-based incentives for employees, and spread information about privately held companies too widely."

Conspicuously absent from the article is any indication that the loosening of Section 12(g) of the Exchange Act, which requires Exchange Act filings once a corporation reaches 2000 (pre-JOBS, 500) shareholders, has made any difference at all.  Look for more on this from me.  Eventually.

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