SecondMarket Goes Illiquid in Asia

One would think the people running SecondMarket already had enough on their plates. The New York-based company, which launched as an online marketplace for buying and selling illiquid alternative assets, now covers everything from mortgage-backed securities to bankruptcy claims.

But on Tuesday SecondMarket announced it has a new item on its agenda: Expanding into Asia. To that end, it has raised $15 million in Series B financing from the Hong Kong-based Li Ka Shing Foundation (LKSF) and Dunearn Investments, a subsidiary of Singapore-based Temasek Holdings. The company is setting up an office in Hong Kong and plans to spend the bulk of the year researching its next move.

I spoke earlier today to Jeremy Smith, SecondMarket’s chief strategy officer, about the company’s rationale for expanding overseas and what’s up in general in the world of illiquid assets – in particular the buying and selling of private company stock:

Q: Based on your preliminary research and discussions, what kinds of illiquid assets are Asian investors looking to buy?

A: The assets people are interested in are private company stock in U.S. companies. Limited partnership interests is another area where we see both buy- and sell-side interest.

Q: How about assets specifically to sell?

A: We’re seeing mostly sell-side interest in structured products (ex. Mortgage-backed securities). Also, bankruptcy claims, especially related to Lehman Brothers. They’re looking to get some sort of recovery on them.

Q: Just a few months ago, you acquired private share startup InsideVenture and set up a Silicon Valley office. .Don’t you have enough to do without another expansion?

A: The answer is it’s just there’s such tremendous demand. While we are turning down some opportunities, Silicon Valley for the private company market and Asia are just too big to turn down.

Q: How did this deal come together? Did you seek out investors, or vice versa?

A: We’ve been profitable for the past five years, so we haven’t really sought out capital. But because of our rapid growth, we’ve been approached by a lot of venture capital firms. What we were looking for was a strategic partner in some aspect of the illiquid asset universe. So one VC made an introduction to the Li Ka Shing Foundation and Temasek. We spent a couple of months talking, and the pairing seemed right.

Q: You launched your marketplace for private company shares last year. How’s that progressing?

A: There has been over $150 million in private company transactions, with average transaction size of about $2.5 million per transaction. We’ve seen strong interest in the household names, like Facebook, LinkedIn, Twitter and Zynga. There’s also been meaningful buy and sell interest in good startups that aren’t household names, like GridPoint and Solyndra.