Secondary Markets: Much Needed Liquidity For Silicon Valley Startups Or A Private Stock Market For The Rich? Posted by Tom Foremski - May 11, 2011 Tuesday afternoon I was in the "Gulag," the warren of Venture Capital firms along Sand Hill Road, to attend SharePost's conference on "Market Issues & Opportunities for Private Companies.
" The conference room was packed and for good reason. The lack of IPOs over the past ten years has created a liquidity crisis: how do investors and entrepreneurs get some of their money out of their companies, many of whom are profitable enterprises? SharesPost, which was founded by Greg Brogger in early 2009, offers a solution: a private stock market for privately held shares where wealthy, accredited individuals can buy and trade shares held by Angels, VCs, and employees of startups. This secondary market has become controversial in several respects: -It is a private stock market that the public cannot participate in but it's the only way to buy stock in hot companies such as Facebook or Zynga. Joseph Grundfest, a former SEC Commissioner, and current W.A. How Yuri Milner Made Billions In The New Bubble.
Posted by Tom Foremski - March 28, 2011 Craig Mellow, at The Deal Magazine has a fascinating profile of Yuri Milner, the Russian investment banker who runs Digital Sky Technologies, a multi-billion dollar fund. Close connections (The Deal Magazine) Mr Milner has garnered tremendous amounts of publicity for his investments in Facebook, Groupon and other high flying US companies.
These companies aren't public but their shares can be traded on private markets but only by individual investors and employees in the company, and prequalified private investors with a high net worth. These secondary markets have become larger over the past few years because there has been little demand for IPOs and they provide a capital exit for some shareholders. At the time of Mr Milner's investments in Facebook, there was a lot of sniggering about the high valuation he was prepared to pay and his willingness to do it on lax terms. It was seen as a naive investment decision by an outsider. VC Interview: Bob Ackerman Warns On Secondary Market Excess. Posted by Tom Foremski - January 4, 2011 I spoke with Bob Ackerman, managing director of Allegis Capital and a veteran Silicon Valley venture capitalist about some of the trends and issues in VC. He spoke about his concerns about the secondary market, and that innovation in the US is being constrained by bad regulations, taxation and poor education.
Here are some notes from our conversation: - I have nothing against the secondary market because it addresses a need for liquidity and markets always create a solution to a problem. . - I think secondary markets play an important role but I'm concerned that excesses in this market will attract regulations that can be over-kill. . - In our investments we think there is room for teams to take some money out, especially if they have been working together for many years and they need some money for a mortgage or college.
. - My predictions for 2011 are that we will see a modest improvement in IPOs and also more M&A activity. Please see: VCWatch: VCs Increasingly OK With Founders Taking Early Liquidity. Posted by Tom Foremski - December 9, 2010 Paris: There was a fascinating VC panel at Le Web moderated by Travis Kalanick, an angel investor; with Jeff Clavier of SoftTech VC, one of SIlicon Valley's most successful VCs; Philippe Botteri from Besssemer Venture Partners; Bernard Liautaud from Balderton Capital; and Barry Silbert, CEO and founder of SecondMarket. Here are some of my notes from the panel: - Mr Silbert's company runs a secondary market in shares in private companies. The shares are sourced from angel investors, founders, and employees. SecondShare plays an important role in creating liquidity in private companies in the absence of an IPO market. - It can take up to ten years for a startup to have an exit and that's too long to expect founders and employees to wait. - Traditionally, VCs have been against founders taking money off the table because they have less "skin in the game" and thus less motivated to create a successful company.