Why SecondMarket Needs Facebook

Despite boasts from its CEO that initial public offerings are a thing of the past, hot New York startup SecondMarket, which makes markets for trades in private companies, may be vulnerable should some of its hottest firms decide to debut in the public markets.

Connie Loizos over at peHUB makes the case that despite the impressive growth SecondMarket has displayed in the past year, the firm’s performance depends on its listed companies remaining private:

 

That’s one perspective. Another is that SecondMarket’s prospects could flag after the likes of Facebook, Zynga, and LinkedIn — whose S-1 filing is reportedly imminent – go public. While it’s easy to imagine other startups proffering their shares on SecondMarket, it’s harder to believe they’ll receive the same attention and demand as their uniquely successful predecessors, which have received not only glowing press, but also, in Facebook’s case, its own Oscar-nominated movie.

Ms. Loizos also worries about the company’s cyclical vulnerability:

Not last, facilitating secondary share trades may not prove lucrative enough to buffer the company if the markets once again take a downturn.  SecondMarket receives a commission of between 3 and 5 percent of every transaction, and while it expects its private company stock business to triple over the next two years, its total transactions thus far have been roughly $500 million. By my math, that translates into just $25 million.

Could it be that what’s put SecondMarket on the map — an exchange for shares in sexy but private companies — also prove to be its greatest weakness, when enthusiasm for loved stocks like Facebook calms down? We’ll have to wait and see, but then again, we may already have the answer.

mtaylor [at] observer.com | @mbrookstaylor

Why SecondMarket Needs Facebook