More traditional financial institutions also are participating in the secondary market, with mutual funds, hedge funds and asset managers like BlackRock Inc. occasionally buying shares this way. Last month, Nasdaq bought Secondmarket Solutions Inc., the operator of a software platform that helps facilitate the sales of shares in private companies.
“The market has really evolved tremendously,” Secondmarket CEO Bill Siegel says.
A bill making its way through Congress would further legitimize the market by deregulating resales of private-company shares, allowing startup employees, managers and investors who have the consent of the company to sell their shares to any wealthy investor who wants to buy them.
More evidence that the secondary market is getting bigger: the increasing propensity for Valley VCs selling early. Since 2011, there have been at least 157 transactions valued at $2.64 billion in which a venture capital firm sold its stake in a startup, according to Pitchbook, a researcher that pulled the data from public filings and news reports. That’s up significantly from 2005-2010, when $449 million worth of transactions occurred, according to Pitchbook.
Dave McClure, an early investor in startups including CreditKarma and Twilio, said it can be painful to cash our early when you see a company’s value increase later. Yet he’s done it several times because it’s a “prudent step.”
“Bears make money, bulls make money, pigs get slaughtered,” he said. “There’s no reason to be a pig.”