SecondMarket taps own marketplace, liquidates $13M

Yuri Milner, Social + Capital Partnership, Ashton Kutcher value company at $160 million

SecondMarket, a leading marketplace that allows investors to trade private company shares, just completed its own liquidity event, bringing on top investors, including Yuri Milner and newly-formed Social + Capital Partnership, a VC firm started by former Facebook executive Chamath Palihapitiya.

Over the last month, SecondMarket was running a sale of its own shares. In the end, they managed to help employees and shareholders sell $13 million of their stock for a valuation of $160 million. Other investors in the transaction included Ashton Kutcher, celebrity and prolific investor.

"I think its great that what they advocated for others they did for themselves. They got a great group of investors, I think the world of Chamath," said Ken Sawyer, Founder and Managing Director at Saints Capital, a leading direct secondary investment firm.

Why is this noteworthy? About 10 years ago, particularly during the Internet bubble days, a transaction this size could have been an IPO. These days, companies of this size can't as easily go public. SecondMarket helps companies of this size - $200 million in market cap - to perform liquidity events without having to deal with the public markets, Barry Silbert, CEO and Founder of SecondMarket, has told me in the past.

Additionally, the marketplace provides a far more efficient process to selling shares.

"The SecondMarket platform allows companies to decide how they want to shape their secondary market- the company determines and selects the buyers, sellers, how much the shareholders can sell, and how often the market is open (it could be once a week, or it could be annual, like ours)," said Barry, who also sold some of his shares in the transaction. 

"SecondMarket and its competitors are an important contributor to well-functioning markets. They are valuable and provide a good solution," added Sawyer.

But while SecondMarket may be providing liquidity, investors see activity limited to sophisticated investors, who might only see these platforms as somewhat beneficial.

"I think, however, that retail interest on their exchanges will shrink and that their solution is only marginally helpful for institutional buyers given the increasing confidentiality and legal restrictions associated with sales of private company shares," said Sawyer.

Additionally, the question that can only be answered over time is how many private companies will drive enough interest to make the site a robust trading platform? 

"It's interesting to think why there is such illiquidity of sub-$300 million market cap stocks on Nasdaq or the OTC markets, yet there will be liquidity for small companies with less disclosure on another market," said Sawyer. "I get the liquidity for the Facebooks of the world, but the concept that there will always be lots of 10 billion plus valued private companies with lots of employees and investors selling and significant disclosure of information is something I wonder a lot about."

(Full disclosure: Barry Silbert is an investor in Vator)