Second Market — Canary In The Coal Mine? Silbert Says Yes.

Activity on the auction site has spiked in the last 18 months because so many people — venture capitalists, limited partners, employees of startups and others — have their money tied up in illiquid assets and want out, said founder Barry Silbert, who spoke yesterday on Grant Thornton’s conference call introducing their latest report on the long-term decline of U.S. IPOs.

Second Market now has $25 billion worth of assets for sale and 5,000 participants, and Silbert expects the site to complete 2 billion transactions by the end of the year. Some of the biggest names in Silicon Valley — private companies that are unwilling or unable to go public — are selling assets, including Facebook, eHarmony, Second Life, LinkedIn and Tesla Motors.

There’s more interest in Second Market from investors too, Silbert said, partly because secondary sales are the only way some of them can get in on these deals. So Benchmark, Accel, NEA, IVP and several other VCs and investment banks are shopping at Second Market.

As happy as he is to have the business, however, Silbert wants regulatory reforms so he can get even more. One of his suggestions is for the SEC to allow private companies to have more than 500 accredited shareholders. When companies cross that limit now, they have to file to go public, so they hesitate to use their stock to make acquisitions and key hires.

“We need a robust market for private company stock — without it we’re undermining global competitiveness,” Silbert said. “We’re a canary in the coal mine.”

How long Second Market will be successful, however, remains to be seen. The company’s name came up last week on a panel of VCs speaking at the Dow Jones Limited Partner conference in SIlicon Valley — they said exchanges have been tried before but have never worked, because no one has really needed them to find and get access to the best companies.

Second Market acquired a competitor — InsideVenture — a few weeks ago, and Silbert will no doubt be lobbying Congress and the SEC through the new 501(c)(6) announced yesterday by Grant Thornton: the “Coalition for Restoration of U.S. Listings and Markets.”

Backers include former NASDAQ vice president David Weild (a co-author of the Grant Thornton report), former SEC deputy chief of staff Patrick Von Bargen, Wilson Sonsini CEO Steve Bochner, Pascal Levensohn of Levensohn Venture Partners and several others.

Grant Thornton’s presentation, which includes Silbert’s slides on Second Market, is below.