25 Jun Sharespost-Nasdaq Joint Venture Launching Soon

Sharespost, an online platform for buying and selling stock in private companies (like Twitter, etc.) is getting closer to launching its private company platform joint venture with Nasdaq which was announced in March. This is a pretty big deal because it is a major public securities exchange acknowledging the need to get into the market for trading private company stocks. It’s almost like when the battery companies finally gave in and started making rechargeable batteries. One assumes Nasdaq will be assisting on the technology side.

After the Facebook IPO there is no question the total market for trading private securities has gone down. But I am told it remains strong. SecondMarket is another platform similar to Sharespost and apparently also doing well. But wait, how can there be a trading market for stocks that can’t trade? Because of exemptions that the SEC provided and confirmed to these players. By keeping the buyers to “accredited” and sophisticated investors, the stocks can be transferred with the assistance of the platform. Probably more correct to say transferred than traded frankly, because standard purchase agreements and other indicia of a customary transfer of a privately held security are typically involved.

But the bigger story with these platforms is that it helps companies stay private longer. Insiders can begin to cash out without feeling the pressure to go public. Same for venture investors. Employees whose stock options have vested also don’t have to wait. Are the valuations in these private companies as good as in a public company? Facebook’s IPO of course was fairly disastrous, and its stock was trading well above the IPO price and its initial trading price in the private market. But that’s an anomaly I think. I’m all for companies going public when they can benefit from doing so and can bear the costs of being public. But don’t forget to see if there are benefits to staying private! If so, these platforms may assist. Disclaimer: I have no direct or indirect financial or other interest in Sharespost or any private company stock trading platform.