(Bloomberg) — Back when Mark Zuckerberg was still at Harvard, a guy named Barry Silbert opened a private club for future Facebooks of the world. The idea was this: Let people trade stock in hot young companies — before those companies go public.
At the time, it seemed crazy. A decade on, Silberts creation, SecondMarket Solutions Inc., has drawn the interest of Nasdaq Inc., which bought it for an undisclosed sum to combine with its own market for non-public companies, Nasdaq Private Market. The price was said to be less than $10 million, according to a person briefed on the deal. Their merged client base will include more than 200 private companies, including Pinterest Inc., Tango Inc. and DocuSign Inc.
The price was said to be less than $10 million, according to a person briefed on the deal. Their merged client base will include more than 200 private companies, including Pinterest Inc., Tango Inc. and DocuSign Inc.
What I envisioned was creating a whole new category of companies that were not public but were not quite private, Silbert, 39, said in an interview. I think we were very successful creating this new category thats been growing very, very fast. It was never built to be sold. So Im certainly excited and pleased to see the company end up with such a big company like Nasdaq.
The acquisition will give a boost to Nasdaq Chief Executive Officer Bob Greifelds push into the world of pre-initial public offering companies. The newer, bigger 30-person Private Market, to be led by SecondMarket CEO Bill Siegel, will keep working to persuade fledgling companies to stay private rather than go for the quick money — and burdens — of an IPO. For the moment, the markets are on his side: 2015 has been a particularly tough year for new listings given the market volatility.
Nasdaq is much bigger, so theyre buying it to help support one of their growth initiatives, said Rich Repetto, an analyst at Sandler ONeill & Partners LP. It will help them as a breeding ground for new IPOs.
Silbert declined to comment on the purchase price, deferring to Nasdaq, which also declined to disclose what it paid. SecondMarket and a bitcoin venture called Digital Currency Group were two subsidiaries of a holding company in which Silbert is chairman, he said. Silbert stepped down as CEO of SecondMarket in 2014 and has focused mainly on DGC since then, he said.
Facebook Shares
Silbert said the deal validated his vision. SecondMarket rose to prominence as venture-backed technology companies gained in size and attention in recent years. One of SecondMarkets most attention-grabbing clients ever, Facebook Inc., used the service to trade shares before its $16 billion initial public offering on Nasdaq in May 2012. Twitter Inc., LinkedIn Corp. and Dropbox Inc. are among other tech companies that used SecondMarket.In February 2010, Singapores sovereign-wealth fund Temasek Holding Pte and Hong Kong-based Li Ka-shing Foundation Ltd. together bought a combined 10 percent stake of Silberts company for $15 million, valuing it at $150 million.
The company was the biggest private market for buyers and sellers for Facebook shares for four years, a period that saw the social networks valuation driven up more than 10-fold to exceed $100 billion. Commissions on Facebook trading may have accounted for almost a third of SecondMarkets revenue in the last full year it was private, Bloomberg News reported in 2012.
Theres a lot of capital thats found its way from public market investors to the private market, Silbert said. Since the Facebook period on SecondMarket, companies have come to appreciate controlled liquidity, discreet liquidity, which can be a really good employee benefit. As the acceptance of staying private continues to grow, Nasdaq allows them to acquire the dominant position within a fast growing market segment.
Silbert, who grew up in Gaithersburg, Maryland, has been a registered broker since he was 17. In 1986, his father, a government auditor, died from an aneurysm of the main artery of the heart, and Silbert pursued his odd jobs, including work at a liquor store and selling greeting cards, with even more determination, his mother Andrea Epstein told Bloomberg Markets magazine in 2011.
Enron Assets
He earned a degree from the Goizueta School of Business at Emory University in Atlanta and spent a summer at Bear Stearns Cos. As a 25-year-old banker at Houlihan Lokey, Silbert worked for the creditors of Enron Corp., traveling the globe after the firms 2001 bankruptcy, flogging Enron assets, including fiber- optic cable and Bolivian pipelines.
Silbert started an earlier iteration of what would become SecondMarket in 2004 with the help of a $300,0000 investment. The company took the SecondMarket name in September 2008. A February 2010 investment by Singapores sovereign-wealth fund Temasek Holding Pte and Hong Kong-based Li Ka-shing Foundation Ltd. valued the company at $150 million.
For most of its existence, its main rival has been SharesPost Inc., which before today held a stake in Nasdaq Private Market. As Nasdaq bought SecondMarket, it also bought out SharesPosts stake for more than $10 million, according to the person with knowledge of the matter.
The market for private company shares now has two major players each serving a different market function, Greg Brogger, CEO and founder of SharesPost and the former president of Nasdaq Private Market, said in a statement Thursday. SharesPost is the pre-eminent liquidity provider for late-stage private growth companies and their shareholders. Nasdaq Private Market delivers software to issuers to run formal liquidity programs efficiently.
More Unicorns
The market that Brogger hopes to split with Nasdaq is only getting bigger. Startups are holding off from IPOs and staying private longer, with the number of closely held companies valued at more than $1 billion surging. There are now 142 of these so- called unicorns with a total valuation of $506 billion, according to CB Insights, a company that analyzes trends in venture capital.
Unicorns also are getting created at a faster clip. In the first nine months of this year, the number of startups that raised money from the private market at a valuation of $1 billion or more rose to 58, according to CB Insights. Thats up from 38 for all of 2014.
Few of the unicorns created in 2014 went public this year. Many raised more private financing. That means theres a glut of cash-hungry private companies looking to buy and sell shares.
The experience of companies that have gone public this year isnt likely to encourage others to follow. While Ferrari NV enjoyed a 5.8 percent gain in its first day of trading Wednesday, the Bloomberg IPO Index, which tracks businesses for a year after they go public, has dropped 18 percent in 2015. In the span of about a week earlier this month, Digicel Group Ltd. canceled a sale, First Data Corp. priced shares below a marketed range and Albertsons Cos. postponed an offering.
As the acceptance of staying private continues to grow, Nasdaq owning SecondMarket enables them to acquire the dominant position within a fast growing new market segment, Silbert said. I dont think were ever going back to the days where a founder starts a company and they have to wait seven years before they see a dollar for their equity.
