Trading Facebook

It’s June 15th, and the flat screen TVs hung around SecondMarket’s downtown Manhattan headquarters are all turned to Bloomberg News’ coverage of the Pandora IPO. It’s the latest fast-growing, venture-backed, private technology company to go public with huge media fanfare. After being offered at $16 per share, the price reached $22, but is already making a decent. “It’s back down to $19,” Barry Silbert says, as he and colleague Mark Murphy keep checking the score as if it’s the NBA finals. These guys are more interested than most people in private tech companies going public.   

Silbert is founder and CEO of SecondMarket, a marketplace that connects buyers and sellers of a variety of illiquid assets. This includes bankruptcy claims, restricted public equity, and shares of private, venture-backed companies.   SecondMarket has traded shares of some of the most rapidly growing private tech companies, including Facebook and Twitter. Shares of LinkedIn were traded on SecondMarket before it went public in May. Short of an IPO or an acquisition, shareholders don’t have many options for cashing out, and noninsider investors have little chance to acquire shares in hot private companies. 

Sensing the opportunity, Silbert created SecondMarket with his late partner Brad Monks in 2005.Fast forward to today where, according to Bloomberg.com, SecondMarket is the world’s largest broker of venturebacked, private-company stock based on the value of shares traded. The firm’s private-company transactions totaled $100 million in 2009 and $360 million in 2010. They have offices in Manhattan, San Francisco, and a business development team in Hong Kong.   

NY Report executive editor Daria Meoli spoke with Silbert and Murphy, his head of public affairs, high school buddy, and “right-hand man,” about starting his business with $350,000, why company culture counts, and how he’s becoming a more approachable CEO.   

Daria Meoli: How did you come up with the idea for SecondMarket?   

Barry Silbert: The idea for SecondMarket came out of the work I was doing with bankruptcies and restructurings in investment banking. Many times, companies would emerge from bankruptcy, and as part of that process, all the stock would be distributed out to the creditors. So, private stock ended up in the hands of a lot of illogical holders. Having advised the creditors as part of the bankruptcy, we would get calls from these new stockholders wanting to trade the stock, but the company wasn’t public. Here I was, a 25-year-old associate at Houlihan Lokey Howard & Zukin, with no Rolodex, and these creditor clients would call me to say, “Hey, can you help me get out of $5, $10, $20 million of this stock?” The light bulb went off for me and I saw there was a real need for a marketplace.   

As I started investigating this opportunity, I realized there was more than just private company stock out there. There are trillions of dollars of assets that don’t trade on an exchange. In mid-to-late 2003, I decided I was going to leave banking, and in January 2004, I got my bonus and left. I spent two weeks in Hawaii to decompress, and when I got back, I started writing a business plan to build a marketplace to connect buyers and sellers in lots of different types of illiquid assets.   DM: Now that you’ve been in business for several years, how has that plan evolved?   BS: The first version of the plan had us going out and raising $2 million of capital to build an incredible, eBay-like system, but I got really good advice: “Instead of spending a year to raise all that money and another year to build something, why don’t you just raise a little bit of money and just start trying to broker some type of illiquid asset without having built all the technology infrastructure?”   

We took that advice, raised $350,000, and in January 2005, we opened our doors. Within a few months, we were generating revenue and we were profitable because we hadn’t spent a year trying to raise money and we hadn’t built a technology infrastructure to support a business that didn’t yet exist. For the first few years we were very much a telephonebased brokerage firm that had some technology as part of the business.   

Over the past five years, we’ve successfully integrated technology into our process. We’re not a technology company; I would describe us as a hybrid company. The vision for the business has never really changed, but the way that we went about it changed significantly from that first business plan to where we are today.  

When Facebook Calls, You Answer   

DM: Your business has received a lot of attention for trading assets of companies in the technology sector. Was that also part of your original plan?