When Facebook and Twitter were private market darlings back in 2011, their shares were being actively traded on a site called SecondMarket. So promising was this back-channel way of selling start-up shares that SecondMarket itself raised money at a $200 million valuation.
That was then. The next group of Silicon Valley high fliers like Square and Airbnb shut the market down, establishing rules that prohibited early employees and investors from selling their equity except when specifically authorized by the company.
The change helps explain SecondMarket's sale on Thursday to Nasdaq Private Market, a unit of Nasdaq. The acquisition price was well below $100 million, said a person familiar with the deal who asked not to be named because terms weren't disclosed. A Nasdaq representative declined to comment on the price.
After Facebook's IPO in 2012, SecondMarket's business dwindled due to a lack of commissions. The New York-based company moved into selling software to help start-ups manage their tender offers.
"Facebook and Twitter allowed transactions, but the next generation of companies as they grew and had too many employees wanted to do it in a more organized away," said Larry Albukerk, managing partner at EB Exchange, which facilitates the sales of pre-IPO shares. "They didn't allow one-off transactions."
For Nasdaq, providing technology to help emerging tech start-ups manage liquidity events is valuable because some of those companies will eventually go public. Offering services at an earlier stage gives Nasdaq a potential advantage over the rival New York Stock Exchange.
In 2013, Nasdaq said it was partnering with a company called SharesPost to create the Nasdaq Private Market, and on Thursday it acquired SharesPost's minority interest in the entity. Nasdaq Private Market and SecondMarket together serve over 200 private companies including DocuSign, Pinterest and Shazam, Nasdaq said.
"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," SecondMarket CEO Bill Siegel said in the press release.
Given the surge in the number of billion-dollar start-ups and the relative dearth of tech IPOs, there's still plenty of demand for private transactions. Employees are sitting on mountains of otherwise illiquid equity, and often just want to raise enough cash for a car, a down payment on a house or to put a kid through college.
Albukerk said the most actively traded private company is data analytics software developer Palantir, which raised money at a $20 billion valuation in July 2014. "They're the Facebook of today," he said.
According to The Wall Street Journal, there are 124 venture-backed private companies valued at $1 billion or more, including 11 worth at least $10 billion. Albukerk, who started EB Exchange in 1999, said this is his busiest year ever for transactions.