A Year of Truth for Secondary Markets as Big Players Move to Public Markets; Millennium Sees Big Growth Ahead
Last year was pretty solid year for the secondary market. SecondMarket’s results are just one example. The online exchange for private company shares said its transaction volume surged 55% to $558 million as ex-employees, investors and founders sold shares to institutional and other buyers.
This year could be a moment of truth. With private company giants Zynga and Groupon now trading on the public markets and Facebook expected to join them, 2012’s trading volume is a question mark.
Millennium Technology Value Partners’ co-founder and Managing Partner Samuel Schwerin says not to worry. Schwerin anticipates a substantial increase in volume this year.
He also sees the secondary markets undergoing significant change, due at least in part to the evolving way young companies think about secondary transactions. “I think it’s acknowledged that secondaries are a component of how venture works” now, says Schwerin. Startup executives, company boards and venture investors will make less distinction between growth capital and secondary transactions, he says.
“Two years ago, there was a real stigma around secondaries,” Schwerin told peHUB. “I don’t see that anymore.” More venture financings, particular later ones, will include secondary components.
This new acceptance will enable new investors to come into deals and reset valuations.
This year is also likely to see new sophistication come to secondary transactions, says Schwerin. Companies will take greater control of transactions, perhaps treat them like financing events. That may mean creating annual liquidity events for employees to sell some of their stock.
Millennium said 2011 was a busy year for capital deployment. The firm invested about $150 million in 14 portfolio companies out of its $284 million 2010 fund. The firm in a January press release said 2012 is shaping up as another strong year for investments given the growing interest in shareholder liquidity.
Schwerin added that the firm is thinking about raising a new fund in early 2013. It would probably be similar in size to the present fund.