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A New Market for Toxic Assets, Online

By    |   Thursday, 23 Apr 2009 04:54 PM

The market for initial public offerings (IPOs) remains moribund, but some aggressive investment bankers have created an online platform to sell "illiquid securities" to wealthy clients.

The firm developing the platform, SecondMarket, offers investors an online trading platform which includes private company securities. The project has been in R&D for more than a year.

This market is designed to offer a new liquidity model for private company stakeholders, including founders, angel investors, current and former employees, venture capital firms and private equity funds, SecondMarket says.

The system enables accredited and institutional investors to gain access to private company investment opportunities which are not available elsewhere, while providing private companies an effective way to control secondary market activity, the company claims.

The project resulted from "dozens of meetings with venture capital firms, institutional investors, private company employees" and, most importantly, entrepreneurs.

"Our goal is simple: to help private companies thrive, thereby generating enhanced returns for their stakeholders," says SecondMarket CEO Barry Silbert.

"We are in the middle of a massive restructuring of our capital markets and I'm thrilled that SecondMarket is taking the lead in the development of innovative, value-creating solutions to the systemic problems that exist in our capital markets."

As part of the marketplace launch, the company has released the SecondMarket WatchList, a compilation of private companies that SecondMarket participants identified as some of the fastest growing firms in the country.

SecondMarket participants can access free, aggregated public data on the WatchList companies and indicate their interest in purchasing securities in these companies through SecondMarket.

"I have been saying for years that we need a new path to liquidity for private companies," said Fred Wilson, Managing Partner of Union Square Ventures.

Access to the SecondMarket platform is free. Thus far, 3,000 participants managing more than $1 trillion in assets have become part of the SecondMarket network. More than 600 accredited investors have expressed interest in private company securities, the company says.

"The lack of a functional IPO market and sluggish M&A activity has caused investors' average holding periods in VC-backed companies to double. The result has been reduced returns for investors, financial hardship for founders and employees, and consequently, a very difficult financing market for private companies," said David Weild, former vice chairman of NASDAQ, chairman of Capital Markets Advisory Partners, and an advisor to SecondMarket. "There needs to be a third path to exit."

While overall M&A activity has been tepid, that is starting to change, at least in some economic sectors. According to a report in Barron's by financial journalist Jon Najarian, a number of sector plays are emerging in both the technology and pharmaceutical sectors.

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The market for initial public offerings (IPOs) remains moribund, but some aggressive investment bankers have created an online platform to sell "illiquid securities" to wealthy clients. The firm developing the platform, SecondMarket, offers investors an online trading...
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2009-54-23
Thursday, 23 Apr 2009 04:54 PM
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