higher learning

After Facebook, SecondMarket Seeks to Educate Investors on the Next Big Things

Health tech, film finance, restaurants and beyond.
silbert After Facebook, SecondMarket Seeks to Educate Investors on the Next Big Things

SecondMarket CEO Barry Silbert.

So you never managed to get your hands on any Facebook shares ahead of the social media giant’s IPO, and given some of the prices paid in the secondary markets, maybe that’s not such a bad thing.

You’re fascinated by the rapid advances in health care IT, maybe, intrigued by the notion that thousands of startups will be taking advantage of mobile, or big data, to disrupt the incumbent players—incumbents with deep pockets to buy up the most promising entries.

Ah, but where to start. You’re not a venture capitalist, you’re just an accredited investor looking for the kinds of outsized returns that stocks and bonds aren’t getting.One idea: SecondMarket.

The company, perhaps best known for providing a platform to buy and sell pre-IPO shares in Facebook, has a problem that parallels that of the intrigued but uninformed investor.

SecondMarket is in the business of providing liquidity for lightly traded assets—whether that means the stock in private companies or Lehman Brothers bankruptcy claims. Sometimes, that means assets that investors don’t understand—and might find scary.

“Investors will tell us, ‘It’s interesting, but I’m not sure I really get the sector, or the thesis,’” said Jeremy Smith, SecondMarket’s chief strategy officer in a phone call with Betabeat. “That will always be the case for us, because we offer unusual investments. So we decided, maybe we need to develop some sort of education program.”

One solution: What Second Market calls its themed-month program. SecondMarket chooses an asset class, commissions a white paper on investing in the area, curates a collection of research and journalism, and hosts a webinar on the subject. Then the company offers investors a selection of investment opportunities in the given field.

When the program debuted last month, SecondMarket focused on film finance, partnering with Slated—an online marketplace for investing in movie production—to introduce investors to investing in independent film.

For December, SecondMarket is focusing on health tech, working with  accelerator StartUp Health to guide investors through the new space. (While rules governing the way that financial firms can market themselves prevented Mr. Smith from giving us the skinny on specific health tech month investments, he said that the opportunities include individual companies and funds that invest in portfolios of startups.)

By pairing the education component with investment opportunities, SecondMarket’s themed months fit neatly with the company’s broader narrative. The way the company likes to tell it, a series of events over the last 20 years have made it harder for smaller companies to raise money in equity markets. First, online brokerages began to obviate the need for the sales staff that marketed small cap stocks directly to investors; then exchanges started listing pricing in decimals rather than fractions, making smaller companies less profitable to brokers.

SecondMarket has long posited itself as a source of liquidity for growth-sized companies. With its themed month program, the company isn’t replicating analyst research on smaller companies—but in the case of health tech, at least, it’s stepping into a void on that side of the equation.

The program also provides a reminder that the company is in its post-Facebook period. When the time SecondMarket launched its private stock market in 2009, the company became closely associated with secondary trading in shares of the social media giant. By one measure at least, SecondMarket is surviving Facebook’s IPO, with total transaction volume through the first three quarters of 2012 down a respectable 3 percent from last year

For now, the themed month program is relatively small. Mr. Smith told us that more than 2,000 investors interacted with the film finance materials, and that SecondMarket received “a couple million dollars” of expressed interest in the investments.

That may change as the Securities and Exchange Commission completes rule-making on regulations that govern the way that investment firms can market themselves, which Mr. Smith said will let the company expose more investors to the program.

In the meantime, the size of the audience doesn’t make the project any less fun. Mr. Smith thought better of revealing future topics for the program, but noted restaurants, education technology and peer-to-peer loans as some potential areas.

“Every month I think I can’t get more excited about something,” he said. “It’s like, ‘I’m quitting SecondMarket and going into ed tech, no, I’m quitting and going into health tech. Even community banks, it’s really fascinating what’s going on in that business.”

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