VCs Sidelined on SecondMarket Buy-side to Start ‘11

High net worth individuals are in and VC firms are out. That’s the showing from SecondMarket’s Q1 private stock data, which the auction system released today.

After making 40% of investments conducted on SecondMarket’s platform in the fourth quarter of 2010, VC firms accounted for none of its transactions to start 2011. High net worth individuals made up about 60% of the buyers. SecondMarket attributed this shift to startups increasingly being willing to take on additional shareholders through the auction system’s accredited investor platform.

All told, there was $115 million of deal activity in the private stock segment of the auction system’s business for the first quarter. Private equity firms’ participation was limited.

Data also showed ex-employees, founders and investors made up a growing portion of selling shareholders, while current employees sold less stock. It remains to be seen whether current employees will return as sellers, or if their shying from the marketplace is a result of startups’ placing restrictions on whether, and how, existing staff can utilize their equity.

As SecondMarket looks to broaden its base of stock offerings to its client base, it saw the variety in sell-side shares grow. peHUB reported earlier that SecondMarket is now courting VC firms to sell stakes in their startups via the online auction system, a move that would further expand its platform. Still, the overwhelming majority of investor interest—nearly 80 percent—was reserved for consumer products and services, like Facebook. The SecondMarket report did not indicate specific companies’ stock auction information, or reveal specific buyers.

However, SecondMarket did disclose which companies are increasingly being “watched” by its members over its information network, which contains a news feed of publicly available information on startups. Companies getting more attention over the auction network include Gilt Groupe, Hulu, LivingSocial, Quora, Foursquare, dropbox, Spotify and Alibaba Group.

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