How active can a secondary exchange for private company shares be when the IPO market opens up?
In January, Tesla Motors, which filed for an IPO this year, accounted for 29% of the completed transactions on SecondMarket, the leading exchange to trade private company shares. The prospect of a near-term liquidity event was likely a contributing factor to the activity, according to SecondMarket. But in February, the activity died down. Perhaps for the very same reason — an imminent IPO.
Despite a sluggish start to the year, IPO’s are still expected to make a comeback in 2010, creating new growth opportunities for hungry public investors sure to gobble them up. But what does that do to the activity on SecondMarket?
“When it opens, it’ll be open to companies of a certain size – $500 million or more in revenue and profitable,” said Barry Silbert, CEO and founder of SecondMarket, in this second part of our three-part interview. “When that happens, there’ll be more investors wanting to get more involved in these companies.”
Indeed, already SecondMarket is seeing signs of public-market investors drawn to the excitement of hyper-growth stocks that are certainly missing in the public markets. Mutual fund companies, such as Fidelity, T.Rowe Price and Franklin Templeton are becoming active buyers, said Barry.
Additionally, it’s taking companies between five and 10 years to go public, he explained. “There’s no place for them to get out. That’s where SecondMarket comes in.”
Asked where he saw activity going this year, Barry said that in the first six weeks of this year, 50 private company transactions worth $75 million were completed, up from $100 million in all of 2009. Suffice it to say, it’s a fast-growing segment. Barry also expects the total number of transactions across all illiquid asset classes SecondMarket supports to double from $2 billion last year.
In this segment, Barry also talks about SecondMarket’s business model. Currently, it takes between 2% and 3% transaction fee, which is split between the buyer and seller.
Finally, Barry talks about SecondMarket’s goals to expand into primary fundraising in 2011.
