Business of Fintech

With SecondMarket acquisition, Nasdaq moves closer to liquidifying private shares market

close

Email a Friend

With SecondMarket acquisition, Nasdaq moves closer to liquidifying private shares market

Nasdaq (NDAQ: NSQ) announced that it would acquire private transaction platform, SecondMarket. Founded in 2004, SecondMarket was the 2nd most active private tender market in the US. The company’s primary business is providing liquidity for employees in private companies to conduct private tenders to sell their shares, while providing their employers control over the frequency of the process and who gets to buy/sell shares.

Public markets cooling, hot private markets

[x_pullquote type=”right”]In 2014, there were 211 $40M+ growth rounds – just about one per day. In contrast, there were 15 US IT venture-backed IPOs with offerings greater than $40M last year, slightly more one IPO per month in 2014.[/x_pullquote]This acquisition comes amid a tepid market for tech IPOs. Public tech listings have fallen this year to the lowest point they’ve been in 6 years. Indeed, private companies are raising massive amounts of capital from private sources. Tomasz Tunguz, a venture capitalist, did the math on public/private markets disparity and it’s staggering.

There are a variety of factors behind the drop in successful tech companies deciding to publicly float their shares. Jeremy Kopelman of First Round Capital calls this the “private IPO phenomenon“.

According to the venture capitalist:

In my opinion, there isn’t nearly enough focus on “low frequency trading.” Public companies reprice daily. Private companies don’t have to reprice for years on end.

One key benefit of low-frequency trading in private companies is a long-term focus. It removes arbitrary time constraints on growth and profits. By relying on private financing events as “comps,” we risk pricing new financings (and creating new unicorns) based on stale valuations.

With public transactions cooling, Nasdaq has made it clear the exchange is looking for more growthy markets. Nasdaq established a partnership with SecondMarket’s larger competitor, SharesPost, in 2013. The partnership, called Nasdaq Private Market, never really found a lot of traction and Nasdaq reported it would be buying out SharesPost’s stake in the venture.

With the run-up in funding rounds and valuations on the private market, many companies are turning to tender offers to allow employees to take some cash off the table in a controlled manner, set and managed by the company.

“As companies extend their pre-IPO lives, they face increasing pressure to provide liquidity to employees and early investors,” said Bill Siegel, CEO of SecondMarket. “Our combined offering strives to give private companies a comprehensive, company-controlled solution to attract and retain talent, while also providing tools to effectively manage their equity ownership and secondary liquidity for their employees and shareholders.”

facebook trades in private shares

SecondMarket and SharesPost both saw their businesses enter a growth period as Facebook ramped up its business on the social network’s path to IPO.  Facebook was not only a driver but it was a huge percentage of the private stockmarkets’ business. After Facebook went public, SecondMarket decided to focus not on one-off transactions but more on the tender offer process, which companies lead and control.

SecondMarket has facilitated over 70 tender offer programs and processed over $2.5 billion in transaction volume. Another player in the market, startup EquityZen is competing over similar business and currently has close to $30 million of private stock available for sale on the platform. The advent of equity crowdfunding was also seen as a way for startups and private companies to conduct “private IPOs” and sell stock to the general public. True openness hasn’t happened because of concerns over existing regulation and a reticence by companies to partake of the new frameworks created by the JOBS Act of 2012 and Regulation A+.

Regardless of how this plays out, Nasdaq is positioning itself to play a major role in the trading of private company shares.

[x_share title=”Share this Post” facebook=”true” twitter=”true” linkedin=”true” email=”true”]

[x_author title=”About the Author”]

0 comments on “With SecondMarket acquisition, Nasdaq moves closer to liquidifying private shares market”

Business of Fintech

Q1 fintech earnings: stocks in the red, but growth prospects abound

  • Fintech stocks continue to dive in public markets as macroeconomic trends weighed on companies' first quarter earnings, which came in below equity analysts' expectations.
  • We look at four major fintech players that reported their results – PayPal, Square, Robinhood and LendingClub – and outline the major takeaways from their Q1 earnings reports.
Iulia Ciutina | May 09, 2022
Business of Fintech, Member Exclusive

Fintech valuations seriously challenged after a booming 2021

  • Private and public markets are taking a more cautious approach towards valuing fintechs, as the recent market sell-off coupled with macro headwinds are raising concerns.
  • This comes in contrast with the optimism displayed last year, which saw record numbers of capital pouring in the fintech sector, and wave of fintechs going public.
Iulia Ciutina | March 23, 2022
Business of Fintech, Online Lenders

‘Change is hard for banks’: Behind Amount’s acquisition of Linear

  • Amount, a banking technology provider offering account opening, loan origination and BNPL financing solutions, is acquiring SMB loan and account origination platform Linear for $175 million.
  • The acquisition complements Amount’s consumer banking solutions with Linear’s technology for the commercial segment.
Iulia Ciutina | March 02, 2022
Business of Fintech, Finance Everywhere

‘The industry believes that poor credit scores are self–inflicted’: A new wave of fintechs is giving the underbanked access to credit

  • New fintechs are targeting underserved communities that don’t have credit histories, using new methodologies to help them build credit scores.
  • As more Millennials and Gen Zers navigate their financial journeys, their participation in the credit system could increasingly be aided by such fintechs.
Iulia Ciutina | January 26, 2022
Business of Fintech, Online Lenders

From one idea to 2 million applications: TomoCredit wants to change the credit score game

  • As an immigrant, TomoCredit founder and CEO Kristy Kim wanted to develop a solution to the problem of credit accessibility in the US.
  • At first she wanted to license an underwriting solution to big banks, but that would have taken too long - so she decided to launch a credit card company.
Iulia Ciutina | January 24, 2022
More Articles