SecondMarket’s New Life As A Stock Buyback Site

SecondMarket’s real long-term value may finally be emerging as a private company stock buy-back site. This seems to be the conclusion of the company’s third-quarter transaction report, issued earlier this month.

The report is the second since the Facebook IPO. The social network going public represented the loss of a lion’s share of its trading volume. What it reveals is potentially quite interesting: a value proposition based less on hype and more on need.

The most interesting observation is that more than three quarters of buyers on the SecondMarket site during the quarter were companies themselves. They accounted for 79.4% of transaction volume, compared with just 8.9% in the second quarter. SecondMarket says this is due in part to an increase in private company share buy-back programs.

Venture investors accounted for the remaining 20.6% of buyers in the third quarter, according to the report.

Compare this to the second quarter, when hedge funds, family offices and asset managers made up most of the buyers, or 84.7% of transaction volume. Some of the stock excitement that drove them has clearly dissipated. Just how much is hard to gauge because SecondMarket no longer reports an overall transaction figure for its market place.

But clearly volume has shifted in the direction of share buybacks. And clearly employees are comfortable using the site. Three quarters of sellers in the third quarter, or 75.5%, were employees and another 17.6% were former employees. In the second quarter, employees made up 59.8% of sellers.

Another observation worth noting is the changing composition of potential buying demand on the site. The top area of demand in the third quarter was biotech and pharmaceuticals with consumer Web and social media in second place. In the second quarter, consumer Web and social media was by far the largest area of buy side demand.

It is a shifting market place. SecondMarket is trying to adapt.

Photo courtesy of Shutterstock.