Secondary Markets

The Future of SecondMarket In a World Without Private Facebook Shares

"We're working on a world beyond venture-backed companies."
53622v6 max 250x250 The Future of SecondMarket In a World Without Private Facebook Shares

Mr. Silbert

In SecondMarket’s 2011 year-end report, Facebook beat out Twitter, Foursquare, Gilt Groupe, Hulu, Spotify, and more as the trading platform’s number one most-watched company. Facebook has 14,973 “watchers,” almost double the next-closest, Twitter at 7,854. More tellingly, according to public statements from CEO Barry Silbert, 30 percent of SecondMarket’s revenue came from trading private shares of Facebook stock, which will soon become a province of the public markets.

But to hear Mr. Silbert tell it, he’s coping with the loss just fine. After all, it’s not like they didn’t know this was coming. As Crain’s reports, on Wednesday, Mr. Silbert told the audience at an Xconomy forum on New York’s venture capital scene, “We’re completely prepared to fill the hole,” adding, “We’re hiring, and we have a lot of capital.”

Reached by phone this morning, Aishwarya Iyer, SecondMarket’s public affairs manager elaborated on that idea. “We’re in constant conversation with nearly 200 companies, from all across the board,” she said. As an example, she noted that SecondMarket is in the process of getting board and management approval to trade private shares with a number of companies, and that the platform is ” having liquidity programs with some of them right now.”

“We plan on onboarding a big number of them,” she added, which would make up for the loss of Facebook trading. Ms. Iyer declined to confirm whether Facebook indeed represented 30 percent of SecondMarket’s 2011 revenues, but emphasized new areas of interest, “We’re also working on a world beyond venture-backed companies.”

“Facebook put us on the map,” Mr. Silbert admitted at the Xconomy forum, but the company is trying to expand and diversify. Last year, while managing $558 million in private company transactions, the startup also launched SecondMarket for Companies, a tool set that lets private companies interact with potential investors and registered more than $6 billion in buyer interest for companies, including non-venture backed entities like Bloomberg, Burger King, and Cargill, says Crain’s.  Surprisingly, foodie favorites were at the top of non-venture backed companies that drew increased interested, with In-n-Out Burger, Dogfish Head Brewery, and Brooklyn Brewery taking the top newbie spots.

Mr. Silbert wouldn’t comment on whether SecondMarket will play a part in Facebook’s upcoming IPO, but Crain’s says he insinuated SecondMarket might be involved in future public offerings from fast-growth startups.

“We’re developing relationships with private companies and aggregating interest from investors,” said Mr. Silbert. “You should see us play a role in that process.”

Diligent S-1 readers will have noticed a section in Facebook’s filing about secondary transactions, which refers to an ongoing SEC investigation:

The Enforcement Division of the Securities and Exchange Commission (SEC) has been conducting an inquiry into secondary transactions involving the sale of private company securities as well as the number of our stockholders of record. In connection with this inquiry, we have received both formal and informal requests for information from the staff of the SEC and we have been fully cooperating with the staff. We have provided all information requested and there are no requests for documents or information that remain outstanding. We believe that we have been in compliance with the provisions of the federal securities laws relating to these matters.

That paragraph actually refers to a letter sent to companies like Facebook (and SecondMarket and SharesPost) by the SEC last January. At time, SecondMarket offered the following comment:

“We have now received a voluntary request for information from the SEC regarding “Pre-IPO Pooled Investment Funds.”  We are fully cooperating with the SEC in this inquiry.  SecondMarket is a registered broker-dealer, regulated by FINRA and the SEC.  We do not intend to comment further on this matter. “

It’s worth noting that SharesPost, another secondary trading platform often mentioned in the same breath as SecondMarket, is not registered as a broker-dealer with the SEC. But those missing credentials didn’t stop Bloomberg from adding SharesPost to Bloomberg Terminals as a source of “real-time pricing for private companies.”

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  1. Dean Collins says:

    I had no idea that the CEO of a “Startup” has to agree etc to be on SecondMarket and just because i’m a developer who has some shares to sell…doesnt mean i can sell them on SecondMarket.

    I may be the only person who had this misconception…however probably not.

    Dean Collins

  2. @CardinalRose says:

    SharesPost received their B/D license a few weeks ago.