Making Sense of SecondMarket's Trading Numbers

With fast-growing hot companies like Facebook staying private, savvy accredited investors are increasingly looking to SecondMarket, which trades private company shares, for a piece of the action. SecondMarket released its first-quarter trading numbers Tuesday, and they reveal a few key trends.

SecondMarket has now completed a total of $600 million in transactions since its 2009 launch, but the volume of transactions actually declined in the past quarter from the one before that. The platform completed just $115 million in deals, down from $160 million in Q4 2010.

Why the drop? SecondMarket says it's due to new rules it adopted: now it only completes trades when companies provide specific parameters for its market. What does this really mean? The company is being more cautious about which trades it completes, as it faces the specter of growing scrutiny by the SEC.

Another trend: high-net-worth individuals dominated 60 percent of trades, up from just 18 percent in Q4, when venture capital funds dominated. Why? Companies opened up to a wider range of buyers, including more individuals, and SecondMarket lowered some of its minimums.

Even with fewer trades, the companies in action point to what investors think are hot. Facebook continues to dominate the "most watched" list, followed by the usual suspects: Twitter, Groupon & LinkedIn. With LinkedIn set to launch an IPO on Thursday, this raises questions about the longevity of SecondMarket's business model.

What if the IPO market picks up? SecondMarket CEO Barry Silbert tells me he's not concerned. Even if we see more IPOs like that of LinkedIn, Silbert says the public markets simply have too many barriers for the typical $150 million company that previously would have gone public.

He's trying to create a market that's "spring training" for going public, or an option to stay private forever. Silbert told me that while they've been focused on the big names like Facebook and LinkedIn, there are plenty of less famous companies that would thrive on their platform.

So which are the hot companies? SecondMarket tracks "rising stars" — the companies which saw the biggest spike in interest. FourSquare came out among the top, reporting a nearly 3000 percent increase in interest in the quarter. Cloud storage company Dropbox saw a 1640 percent spike in interest, followed by music service Spotify, which drew a nearly 1500 percent jump in interest.

And some new companies landed on the scene. Investors expressed first-time interest in Hulu, LivingSocial, question site Quora, and mobile payment service Square.

The big question facing SecondMarket now: whether it'll face a regulatory crackdown. There's no question that the SEC and congress are interested in greater scrutiny; Silbert acknowledges that. SecondMarket has been actively reaching out to the SEC for guidance on exactly what's approved as they look to expand.

Questions? Comments?