SecondMarket, formerly known as Restricted Stock Partners, has launched an online marketplace where private companies and their employees can sell stock, and it claims to have 600 reputable investors already signed up as buyers.
Trading in this environment will give companies greater control over how they sell their stock and who gets to buy it, the firm says. The service has been in testing over the last year but is coming to a head now that most startups have had their IPO dreams indefinitely put on hold.
In addition to facilitating trades, SecondMarket equips startup companies with a platform to communicate relevant information to their shareholders. The New York-based company says its aim is to connect investors — many of whom already work with secondary market firms — with buyers and sellers they might not have found otherwise.
But this reasoning seems a little shaky, considering how much the secondary market has exploded since the economic downturn descended. Investors seem to be navigating the opportunities just fine without a service like SecondMarket. On top of that, there are some legal concerns with a system like this, as paidContent points out. Some companies have shareholder agreements that prevent the sale of stock via this kind of market, and it may be easier for sellers to commit fraud — so little information is known about private companies usually. Given these risks, it may still prove helpful for smaller firms who need more guidance.
In the past, SecondMarket, dealt primarily in illiquid assets and bankruptcy asset awards. This is its first foray into brokering shares of private companies. It raised an undisclosed first round of funding from FirstMark Capital in 2007.
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