SecondMarket Looking Into Cutting Out the Middleman (VC Firms)


SecondMarket is looking into the possibility of allowing private companies to bypass venture capital firms and sell shares directly to individual investors, peHUB has learned.

“It creates a very interesting opportunity for us as a business,” SecondMarket CEO Barry Silbert told peHUB, adding, “We’re not doing this right now.”

SecondMarket provides a market where private company shares can be bought or sold. (A company’s shares can only be bought or sold if the company approves.) Demand for shares in hot Internet companies has grown to such an extent that even brand name venture firms — like Kleiner Perkins Caufield & Byers and Andreessen Horowitz — have purchased shares via secondary transactions.

SecondMarket charges sellers between 3% and 5% of the value of stock being sold, putting it in line for a massive revenue opportunity if it allows companies to sell shares directly on its exchange. With growing interest in popular Internet companies, such companies could theoretically sell shares on SecondMarket at a higher valuation than they might get from a venture capital firm — driving up overall valuations for Internet companies.

SecondMarket’s business has evolved at a rapid pace, and the frothy fundraising market for Internet companies will likely solidify its position as a dominant player in the private stock trading industry. Still, it remains to be seen what, if any, regulatory roadblocks would emerge either with government agencies or with the Financial Industry Regulatory Authority should SecondMarket move forward with a plan to expand its trading platform to include new fundraisings. Earlier this year, the company revealed an ambitious expansion plan that will bring to 12,000 the number of private companies listed on its site.

“This market is exploding,” Silbert said.