Monday, June 22, 2009

Liquidity Launches

Photo Credit: Bill Tyne, used by Creative Commons licenseJune has seen the start of three new liquidity markets for private equity assets. The IPO market dried up very quickly after the turn-of-the-century dotcom market bust, and most exits since then have been in the form of mergers and acquisitions.

Indeed, it has been one of the biggest challenges for companies raising capital. An absence of a public market for shares has diminished the flow of private capital into technology startups. If the economy is to recover robustly, it is entrepreneurial companies, fueled by angel and venture investment, that will lead the way.

Now some of the leaders in the private equity industry are becoming
entrepreneurial themselves, creating new models for trading equity in privately-held concerns, as a mechanism for investors to take smaller positions in companies, and for employee shareholders to cash out some of their holdings.

Launched on June 1st, InsideVenture offers what it calls a "hybrid public-private offering", or HPPO (pronounced "hippo", lamentably). It works very much like a conventional IPO, with investment bank underwriters making a market, with the exception that InsideVenture member investors enjoy privileged early access to the shares before the public at large.

Our old friend Tim Draper also soft-launched XChange in early June, "The Private Stock Market. Done Right." This new firm offers four distinct service categories. XOM - Open Market is a trading platform for both new issues and aftermarket sales of privately-held shares. XPO - XChange Provate Offering is a private auction where valuations are defined and shares are allocated. XIQ - InQuest matches buyers with sellers, and XBP - Business Platform offers social networking capabilities for collaboration.

Rounding out the new private equity exchanges this month is Sharespost, "We make private equity liquid". This is a fairly straighforward trading post for buying and selling shares in private companies. It seems particularly targeting towards employees of companies that received stock in their companies as incentive compensation (and a "loyalty leash"), but that have no likely pending liquidity events. It lets founders and their early hires cash out some of their equity, and can enable a company to extend its runway before being acquired.

All three trading posts are a welcome addition to the venture ecosystem. Investors can diversify their holdings, shareholders can harvest appreciation, and companies can raise operating capital for growth.


Anonymous said...

Different photo..great job..

Thank you very much...

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D2 said...

Hi Alan!

Lest we forget, it's not about the organization, it's about the service. The reason banks and governments want fine substantial buildings is so we think there is something beyond the service. There isn't.

And when financial institutions become too grand to provide service, they will be replaced as fast as Tim Draper can figure it out. I just can't get over the multi-million dollar fees these guys are betting for not providing service.

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