Private Stock Exchanges for Start-up Companies

SecondMarket and Shares Post are private exchanges where start-up companies' stocks can be traded by investors and employees without having to go through the rigorous IPO process.  Unlike the public exchanges, companies selling shares on the private exchanges can choose which investors are allowed to buy their stock and limit the frequency of transactions.  For example, they may restrict the investor to trade their shares four times in a year.  Companies are able to retain their employees until they are ready for an IPO.  For these emerging companies, there is a market value.  In the traditional process, the investors are reliant on valuations from the venture capital and private equity firms that own them.

Barry Silbert, CEO of SecondMarket, believes the IPO market is dying.  In the last ten years, there have been between 100 to 150 IPOs per year.  There were 400 to 500 per year in the 1980s and 1990s.  It takes ten years for a company to go public since its founding.  It was five years in the 1980s and 1990s.  The growth of online brokers and the end of research from the banks are also factors in this trend.

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