Is it time for private company marketplaces?

Bambi Francisco Roizen · October 27, 2009 · Short URL: https://vator.tv/n/b57

Vator Box takes a look at SharesPost, an online marketplace to trade private company shares

 

With the IPO market in the doldrums for some time, and merger activity still scarce, shareholders of venture-backed companies have had trouble getting liquidity for their stock. The dearth of exits has created a new opportunity for companies such as SharesPost, which launched in June 2009, and SecondMarket, both of which are trading platforms for buyers and sellers of private securities. It's an active sector. Recently, SecondMarket just acquired its competitor InsideVentures for an all-stock purchase.

In this week's Vator Box, Ezra Roizen (Vator Box regular and digital media investment banker) and I take a look at the prospects of SharesPost. Our guest host is Lorenzo Carver, whose expertise is in understanding valuations of startup companies through his company, Liquid Scenarios. 

Here are some of our observations:

- Providing an online platform to trade shares of private securities is an open territory. Right now is the best time to launch such a platform.

- There will be challenges that all marketplaces face, such as getting a significant volume of both buyers and sellers.

- Most venture-backed private companies are highly opaque and pathologically secretive. There will likely be some heat from companies not wanting to have their shares traded in a secondary market as it would create confusion about the value of a company's shares. For instance, in August 2008, Facebook shares traded in the secondary market for between $4 billion and $5 billion. In 2007, Facebook was valued at $15 billion, after striking a deal with Microsoft.

- There may be challenges in protecting buyers of securities. Will buyers really know what the terms are around the securities they're buying?

- SharesPost may end up an investment bank. Wit Capital emerged in the mid-90s as a platform to provide liquidity for small, fairly unknown companies. Partly for regulatory and economic reasons, it turned into an investment bank.

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Bambi Francisco Roizen

Founder and CEO of Vator, a media and research firm for entrepreneurs and investors; Managing Director of Vator Health Fund; Co-Founder of Invent Health; Author and award-winning journalist.

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Liquid Scenarios

Startup/Business

Joined Vator on

Since founding bpCentral, our focus has been on increasing each user's competitive advantage each and every time they interact with one of our applications.  Naturally, this involves more than simply enabling complex calculations to be performed accurately.  In fact, during the first 12 months of developing our new technologies and applications, we put an inordinate amount of resources into discovering how to transform the relationships between idiosyncratic decision-makers and financial information.  Our premise was that if that human to data relationship could be elevated to a new standard, then the relationships of those professionals with the entities and individuals they interact with could be more efficient and therefore more valuable. 


In response, we developed CIMPA, the Carver Import Algorithm, a system that allows any electronic financial information, data or reports to be interpreted by a receiving system without the need for XML, XBRL, tagging approaches or extensive manual data entry.  As a result of this technology, the Company's systems for private equity and venture capital professionals are able to import data in a matter of seconds, instead of a matter of hours. 


Similarly, the Company noted that when users attempted to calculate the outcomes of complex liquidation preferences, anti-dilution provisions and other complex terms that are common to VC/PE transactions, any output was virtually impossible to verify without a costly audit of the formulas.  Since the formulas were generally based in excel, this meant that few if any partners or other key investment professionals could afford to expend the effort to verify how amounts were arrived at.  Upon further consideration, the Company realized that, to a certain extent, this was true of all financial reports.  For traditional financial statements, this point is evidenced in the fact that notes to financial statements typically occupy several times more pages than the actual financial reports do.  This realization inspired the Company to develop a system it calls OferX, which presents all financial information in a manner that allows any user to audit and see how amounts were calculated (in an easy to understand, quantifiable manner) without the need for extensive textual descriptions.

Together these unique tools form the foundation for the Company's offerings, which are backed by over 29 patent pending technologies.


SharesPost

Startup/Business

Joined Vator on

SharesPost makes private equity liquid by efficiently matching buyers, sellers of private company stock and giving them the information, tools and process to make transactions easy and safe. At SharesPost you can download research reports and corporate documents for hundred’s of private companies, including Facebook, Twitter and LinkedIn. Plus, see prices from previous transactions. When you’re ready, connect directly with buyers and sellers of private company shares without brokers or their commissions. SharesPost provides you with automated contracts and integrated e-signature and escrow services to handle transfer restrictions like company rights of first refusal and help process your transaction.

InsideVenture

Service provider

Joined Vator on

On June 1st, 2009, InsideVenture rang the bell at the NYSE and announced a new financial product, the Hybrid Private-Public Offering HPPO(sm) which opens the IPO market to a greater number of growth companies and increases opportunities for long-term small cap investors.

 

About InsideVenture

InsideVenture is a next generation financial services platform that drives late stage financing, liquidity and the critical aftermarket support needed to succeed in the public markets. InsideVenture stimulates economic growth by helping to restore small cap IPOs, capital formation, and liquidity to the U.S. capital markets.  We do this by filling the gap in serving long-term investors that was left with the departure of the “four horsemen” boutique investment banks. InsideVenture is a nexus from which to refocus financial markets back on long-term growth investing and has the support of top U.S. venture firms, fundamental fund managers and other industry leaders (e.g., T. Rowe Price, Wasatch Advisors, SVB, NYSE, NVCA, NEA, Domain, Venrock, DCM, Clarus, Frazier, Versant, Oak Inv., Aisling, and others). InsideVenture is based in Menlo Park, California and on the web at www.insideventure.com

 

Our company’s website is www.insideventure.com

 

Please contact Brita Moeller, VP of Corporate and Investor Services at bmoeller@insideventure.com or (650) 926-0664.

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Lorenzo Carver

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