During market slump, traders turned to secondary markets to get a piece of hot startups

During a wobbly late summer and early fall in the general financial market, more investors than ever used secondary markets to pin their hopes (and dollars) to a few rising stars in the startup world.

SecondMarket is one such venue. On that community’s Private Company Market, you can buy equity in startups that are not yet publicly traded, such as Facebook, Twitter and Zynga.

The company says it saw more trading of shares in privately held startups in Q3 2011 than at any time in the past.

“[SecondMarket] had its best quarter to date in Q3, completing over $167 million in private stock transactions last quarter,” reads a recent report from the company.

“Year-to-date, SecondMarket has completed $435 million in private company stock transactions, a 75 percent year-over-year increase from Q3 2010, when year-to-date transactions totaled $251 million.”

Social media and consumer web products made up the bulk of trades, similar to the activity represented in a lot of institutional funding data from recent quarters, where consumer and social products have been a bright spot.

On the buyer side, trading activity was split pretty evenly between individual investors and financial groups or managers; 51.8 percent of transactions completed and 63 percent of dollars invested in the third quarter were purchases of shares by individual accredited investors. The remaining 48.2 percent of transactions and 37 percent of dollars were made up of deals with asset managers, hedge funds, VC funds, secondary funds and broker-dealers.

On the seller side, ex-employees were the majority group, comprising 64.5 percent of equity sales. Current employees completed around 17 percent of transactions; investors accounted for 8.4 percent; founders made up less than 4 percent of transactions.

On SecondMarket, users often “watch” companies to track shares’ movement. Among venture-backed, privately held companies, Facebook was the most watched company, followed by Twitter, Groupon, Zynga and Foursquare.

However, when it comes to newer companies that gained the greatest number of watchers in the past quarter, Turntable.fm generated the most interest, followed by Jetsetter, Klout and Kickstarter.

Pinterest also stood out as a company that had fewer than 10 watchers at the beginning of the quarter but started gaining traction by the end of September. (Interestingly, the startup raised a $27 million second institutional round at the beginning of October.)

Here’s a look at some of the stats unearthed by SecondMarket in its report:

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