In the wake of Nasdaq’s surprise announcement this week that it was acquiring SharesPost’s exchange for private-company stock and re-branding it the Nasdaq Private Exchange, I asked a number of folks what kind of ripple effects the deal could have.
Reactions, it’s fair to say, were mixed.
Private exchanges like SharesPost and SecondMarket have shaken up the IPO game in the past few years. A number of CEOs – like Facebook’s Mark Zuckerberg – are choosing to wait until going public, deciding the headaches aren’t worth it when there are plenty of private equity investors eager to put money into their companies. The downside is, a delayed IPO means employees and early investors have no way to liquidate their stakes.
New York-based SecondMarket started tackling that problem in 2004, registering as a broker-dealer with the Securities and Exchange Commission. SharesPost, of San Bruno, got into the action five years later with an approach more akin to eBay’s: A platform for prospective buyers to meet sellers and negotiate their own terms.
And with the JOBS Act, passed by Congress last year, giving companies even more leeway to stay private longer, it seems a reasonable assumption that secondary markets will continue to see more business. Nasdaq sure seems to think so.
Laurence Allen, who runs a rival exchange called NYPPEX, told me the Nasdaq-SharesPost deal “is not only a validation of the secondary market model, it is the beginning of a key theme for this decade – the rise of private markets worldwide.”
He and Joe Grundfest, a former SEC commissioner who’s now a Stanford professor, both noted that working with private companies early on could give Nasdaq a leg up when those companies are debating whether to go public on the New York Stock Exchange.
SecondMarket CEO Barry Silbert, on the other hand, was more measured in his praise. “Nasdaq is one of the last to recognize there’s a need for this,” he said. “Companies increasingly wish to avoid the casino-like atmosphere of the U.S. public markets.”
Nasdaq, in fact, made a previous effort to get into the business of brokering private-company stock, with the PORTAL Alliance. But that effort – like another set up by Goldman Sachs – reportedly has struggled to land business. Closer to home, a private exchange called Xpert Financial has come a cropper despite backing from well-connected venture capitalist Tim Draper, whose son Adam was a co-founder.
SharesPost founder Greg Brogger acknowledged this week that traffic on his and other private exchanges has dropped off in the wake of Facebook’s IPO. Some private companies, including Twitter, also have been uncomfortable having their shares sold without their control, and they’ve reportedly tried to bar insiders from selling on the secondary markets.
All of that may have helped drive several SharesPost executives toward the exits last fall; CEO Dave Weir had bailed out several months previously, around the same time the company was wrapping up an SEC investigation into whether the company and other exchanges were trading securities without a license. Brogger and SharesPost agreed to pay a combined $100,000.
The Nasdaq joint venture seems like a nice landing for Brogger, who’ll become president of the rebranded exchange. SharesPost also will continue to exist as a broker-dealer, one of many that Nasdaq officials hope will help clients swap shares in the new marketplace.
As for Silbert – who’s likewise owed much of his business in recent years to pre-IPO Facebook shares – he’s worked to reinvent his company. And when I asked whether he felt any pressure to do a merger of his own in the wake of SharesPost’s move, he flatly said: “We’re not for sale.”
Tags: Barry Silbert, Dave Weir, facebook, goldman sachs, Greg Brogger, IPO, IPOs, Joe Grundfest, Joseph Grundfest, Laurence Allen, Nasdaq, NYPPEX, private companies, secondary markets, SecondMarket, SharesPost, Silicon Valley, twitter, venture capital