

A Second Market is Emerging: Marketplace for Private Company Stock - dwynings
http://www.avc.com/a_vc/2009/04/a-second-market-is-emerging.html

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danteembermage
I wonder, has YCombinator considered creating one of their own? The number of
portfolio companies (it never occurred to me until just now how possessive
that terminology is) by now must be quite large so there would be a wide
variety to choose from and there are probably accredited investors that would
be willing to piggyback on the YC certification mechanism and let the founders
cash out a little bit.

In fact, if the markets became liquid enough you might be able to skip the
whole "round" feature of entrepreneurial finance all together and just release
shares into the marketplace as needed on a week by week basis.

There are, of course, a bucketful of practical problems, and a truck-full of
legal problems (the kind that get you in jail for violating securities laws)
but in principle it could be worthwhile to do.

I suppose if you take that thinking to the logical extreme than any random
small business could bring shares to market and the entrepreneur and investors
can decide through the market mechanism whether they can deal. That would be
an interesting world to study finance in.

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baguasquirrel
Are you sure we could skip the "round" feature of entrepreneurial finance? It
is a classic problem in market economics: whenever you deal with low volume,
unique items, you won't have enough information to set a fair price. Market
economics don't really work until you have a real _market_ around a single
item, whether it be pork bellies or Google stock.

More broadly, anytime the economic stakes of a transaction goes up, you'll
often have the whole bargaining/negotiations spiel (e.g. cars and Oriental
carpets). But the cause in that case is due to the cost efficiency of paying
professional negotiators to extract more money out of the average consumer.

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mshafrir
The "explore our markets" section of the SecondMarket site immediately evoked
"parked domain advertising".

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braindead_in
What are the legal implications? Can you openly trade shares in your private
company in such a market?

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ojbyrne
The NYT article linked to has more details. Basically "The new market will be
open only to accredited investors and qualified institutional buyers."

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ivankirigin
The real question is about the sellers. It might evoke Bubble #1 mindsets, but
raising money by selling stock openly (in this case, not an IPO) could be a
good way to go.

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rjett
From the NYT article..."For one thing, it could be a thin market, on both
sides of the trade. The Securities and Exchange Commission allows the trading
of unregistered securities, but only for select investors. The new market will
be open only to accredited investors and qualified institutional buyers, which
the S.E.C. defines as financially sophisticated enough to invest in high-risk
securities about which there is little public information. These include
individuals whose net worth exceeds $1 million and institutions that manage at
least $100 million in securities."

Understandable...but, drats. There are more than a few startups I would be
interested in investing in, but I don't qualify as an accredited investor.

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ivankirigin
The note about Facebook common stock valuation is interesting.

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joshu
One big problem, in my mind, is that lots of nonpublic companies have
additional rights attached to stock, especially if it's preferred shares. For
example, an employee selling shares might have to offer the shares to the
company and the other shareholders before selling to anyone else, etc.

I find the naming interesting as well. IPO's are the primary market; the stock
markets themselves are already the secondary market.

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joshu
There's a bit in Fred's comments about dealing with the Right of First
Refusals (ROFR)

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rfreytag
What happens when the lawyers get a hold of this?

