SecondMarket CEO: Forget Facebook, the IPO market is dying | Hacker News Reader

SecondMarket CEO: Forget Facebook, the IPO market is dying

venturebeat.com

21 pointsbproper12 comments

FTA: > “The IPO market is dying,” he said. “You see companies achieving robust valuations on the private market but being treated poorly when they go public.” (We’re looking at you, Groupon and Zynga.)

It seems quaint, but there was a time that a company had to have 6 quarters of serious revenue and 2 quarters of solid profits before they went public.

That was before the dumb money from 401k's entered the picture.

I think that is an oversimplification. I dont see the average 401k investor investing in IPO's so I dont see how you arrive at the conclusion that more 401k money equals to more companies going public.

> I dont see the average 401k investor investing in IPO's

Nor, for that matter, do you see many investors at all getting pre-IPO shares. Most of the small guys come in after the IPO.

The problem is that the 401k's go to funds, who are playing a big game of averages. They buy the S&P +/- some delta. IPOs form the delta for some of the funds. (And all of the money buying the S&P means that valuations in general have gotten quite a bit higher over the timeframe of 401k's, which drives post-IPO valuations, which drives pre-IPO valuations.)

Can you point me to any funds that invest immediately in the illiquid shares of a recently listed company?

Search SEC's EDGAR. You will find who the underwriters are selling the IPO shares to.

“We started at the very top with these outliers like Facebook and Twitter, but the aim is to work our way down to much less high profile companies.”

I don't see how SecondMarket is going to fill the void left by FB, Groupon, and Zynga with long-tail trades. But that doesn't mean I don't want to see that happen.

But all I've heard is the headache caused by these types of trades on the company. Sure, disproportionately on Facebook, but if I or one of my coworkers posted and actually sold shares on SecondMarket from our little company, it would be a major annoyance, and spark a lot of internal hand-wringing and tension.

I see it difficult for SecondMarket to create a long-tail market in the smaller, non-SV/NYC, non-consumer internet startups. I can't imagine them doing trades in small middle America biopharma companies (such as we are).

What epxerience does anyone on HN have when SecondMarket trading started happening with Founders/employees/investors at their companies? Was it noticeable? What impacts on employee morale/focus/work did it have, if any? It would drive me nuts if I was CEO and all the water cooler talk was about employees selling shares/options/RSUs (if even possible to trade options/RSUs) on Secondmarket and what they got out of it, etc. Seems like a horrible, distracting idea at a small, <25 person company - not to mention the impacts on your valuation/investor perception in future raises, other externalities.

A stock market with much less leeway for financial speculation is something that I really hope for, but the problem I see is liquidity. I guess that most of the buyers on SecondMarket are looking forward to the IPO anyway, which was only a question of time for Facebook, but is a much less sure event with the smaller companies that would really benefit from this market.

I wish SecondMarket well, but the one it decided to pursue is a very difficult path.

If true, it is bad news. The non-public markets are by and large only open to 'qualified investors', which in practice means those that are quite wealthy.

The single best investment strategy ever devised is diversification. The more of the economy closed to the general public, the less they can diversify, and the worse their risk adjusted returns.

Markets without broad transparent participation and non-existent regulation will be prone to fraud and manipulation. The last couple of years have shown us that even markets with broad participation and (under enforced) regulation can be manipulated. I am waiting for the first few blowups and scandals to happen to restore some balance in this trend of keeping things private for longer.

Exactly! This feels like a "scam" to skirt the rules of the SEC.

> “The IPO market is dying,” he said. “You see companies achieving robust valuations on the private market but being treated poorly when they go public.” (We’re looking at you, Groupon and Zynga.)

Zynga and Groupon were "treated poorly" because their numbers showed that they were NO WHERE NEAR as profitable as they wanted us to believe when they were private (and secrete). I suspect Facebook, also has highly inflated valuation in these "second markets" where information is scarce.

This is a self-serving statement. You really don't hear anyone else repeating this. What's wrong is that SecondMarket has to exist to fill a large liquidity void between startups and public companies.

What I'd love to see is a public stock market akin to Toronto's Venture Exchange, but specifically for technology companies. A mini-NASDAQ if you will. If I could raise money in the public market I could skip VC's, brokers, underwriters and all these middlemen between my company and potential investors.

I think his point is that not every company can get to $1 billion valuation or wait ten years before going public. Like you said, there is a big void to fill, and one that could be very productive for the startup ecosystem.

Think of all the tech companies that can get to $150 M. in a couple of years and still need sensible capital to grow before they are ready for the big time.

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