SecondMarket

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SecondMarket, Inc.
Type Private
Industry Finance and Marketplaces
Founded 2004 (as Restricted Stock Partners, Inc.)
Founder(s) Barry E. Silbert
Headquarters New York City, USA
Area served Worldwide
Key people Barry E. Silbert (Founder, Chairman & CEO)
Products Marketplace Services
Financial Data
Employees 100+ (2009)
Website www.SecondMarket.com

SecondMarket (formerly Restricted Stock Partners) is an American online marketplace for buying and selling illiquid assets, including auction‐rate securities, bankruptcy claims, limited partnership interests, private company stock, restricted securities in public companies, structured products, and whole loans.

SecondMarket's participants include global financial institutions, hedge funds, private equity firms, mutual funds, corporations and other institutional and accredited investors.

The website was created in 2004.[1]

SecondMarket says it is the world's biggest broker of venture-backed private-company stock by the value of shares traded.[2]

History[edit]

SecondMarket was founded in 2004 by Barry Silbert originally to address the growing need for liquidity for restricted securities in public companies. Beginning in early 2008, SecondMarket expanded into a number of other asset classes - first auction‐rate securities, then bankruptcy claims, limited partnership interests, structured products (MBS, CDO, ABS),[3] whole loans, private company stock, government IOUs and bitcoins.[4][5]

In 2007, the company raised an undisclosed amount of Series A financing from venture capital firm Pequot Ventures.[6] In February 2010, the company raised US$15 million in Series B funding to aid its expansion into Asia.[7] In November 2011, the company announced that they had closed a US$15 million Series C round, led by The Social+Capital Partnership.[8] The last round of investment valued SecondMarket at US$200 million, up from a valuation of about US$150 million set in the previous round in February 2010.[9]

On September 1, 2010, the World Economic Forum announced the company as a Technology Pioneer for 2011.[10]

The firm's private-company transactions, which totaled $100 million in 2009, quadrupled by 2010 to $400 million. Based on first-quarter results, SecondMarket could broker $1 billion in private-company shares in 2011, taking fees from 3 to 5 percent on each trade (split evenly between buyer and seller). In March 2011, it had 53,000 registered participants, up from 35,000 in 2010, 6,500 in 2009 and 2,500 in 2008.[2]

Markets Trading on SecondMarket[edit]

Restricted Securities in Public Companies[edit]

Restricted securities, SecondMarket's initial market, utilizes privately negotiated transactions to provide access to liquidity in the trillion dollar restricted securities market.[11][12] A privately negotiated sale allows buyers and sellers to trade registered and unregistered securities, pursuant to certain guidelines and conditions of the Securities Act of 1933. Several types of restricted securities trade on SecondMarket:

  • Registered and Unregistered Stock
  • Affiliate and Control Stock
  • Convertible and Preferred Securities
  • Public Debt Instruments
  • Registered and Unregistered Warrants
  • Block Trades (Small- and Micro Cap)
  • Portfolio of Securities
  • Warrant Management

Auction-Rate Securities Market[edit]

As a result of the economic crisis, in February 2008, auction-rate securities (ARS) experienced widespread auction failures that left hundreds of billions of dollars “frozen” in suddenly illiquid auction-rate securities.[13] In response, SecondMarket (then Restricted Stock Partners) opened up its marketplace to the trading of all ARS types including:

  • Auction-rate CDOs
  • Auction-rate preferred securities (ARPS)
  • Municipal auction-rate securities (MARS)
  • Student-loan auction-rate securities (SLARS)

Bankruptcy Claims Market[edit]

SecondMarket entered into the bankruptcy claims market in June 2008 by acquiring Trade Receivable Exchange, Inc. (T-REX) of Denver, at the time the largest online auction platform serving the bankruptcy trade claims market.[14] A variety of different claim types trade over SecondMarket:

  • Administrative Claims
  • Lease and Contract Rejection Claims
  • Secured Claims
  • General Unsecured Claims
  • Scheduled and Unscheduled Claims
  • Scheduled Priority Claims

Limited Partnership Interests Market[edit]

In February 2009, SecondMarket opened its marketplace to limited partnership (LP) interests, which are ownership rights in investment entities such as private equity funds, real estate funds, hedge funds, and fund of funds. Through this market, current limited partners are able to transfer future capital commitments to other investors who are better suited to satisfy the obligations.[15]

Structured Products[edit]

In April 2009, Secondmarket opened the collateralized debt obligation (CDO) and mortgage-backed security (MBS) markets.[16] The variety of collateral types that can trade over SecondMarket are:

  • Residential Mortgage-Backed Securities
  • Corporate Mortgage-Backed Securities
  • Other Asset Back Securities
  • Corporate bonds (these structures are also known as Collateralized Bond Obligations or CBOs)
  • Banks loans (the structures are also known as Collateralized Loan Obligations or CLOs)
  • Credit derivatives
  • Other CDOs (these structures are also known as CDO-squared)
  • Other specialized debt types

Whole Loans[edit]

Launched in April 2009,[16] SecondMarket's whole loans market facilitates transactions in a wide variety of residential, commercial and specialty loan types. SecondMarket transacts in both performing and non-performing individual loans as well as entire loan portfolios. SecondMarket facilitates trading in a wide variety of loan types including:

  • Residential mortgages
  • Commercial loans
  • Construction loans
  • Consumer loans
  • Industrial Loans
  • Loan Portfolios

Private Company Stock Market[edit]

SecondMarket's market for stock in private companies opened in April 2009 and facilitates transactions in both debt and equity securities in a wide variety of dynamic, high growth private companies.[17] Through SecondMarket, private companies can opt into an organized, controlled private liquid environment that offers early investors and employee shareholders exit opportunity prior to an IPO or M&A event. Numerous high profile companies have traded over SecondMarket including Facebook, Tesla, Zynga and Twitter.[18]

Government IOUs[edit]

SecondMarket’s government warrant market facilitates transactions in registered warrants (IOUs) issued by state governments. When the state of California issued warrants to its creditors in mid-2009, SecondMarket opened up a market place to facilitate the trading of government IOUs.[19]

Bitcoin[edit]

The Bitcoin Investment Trust (BIT) is a private, open-ended trust that derives its value solely from the price of bitcoin. It enables investors to gain exposure to the price movement of bitcoin without the challenges of buying, storing and safekeeping large quantities of bitcoins. SecondMarket acts as the custodian and the trust is audited by Ernst & Young.[4][5] The trust is managed through a subsidiary of SecondMarket.[20]

SecondMarket announced in February 2014 that it planned to open a regulated, US-based bitcoin exchange.[20] It was planning to spin off a separate company for all its Bitcoin activities.[20]

Investors[edit]

FirstMark Capital[edit]

SecondMarket closed a series A round from FirstMark Capital (previously named Pequot Ventures) in late 2007. Pequot was the $2 billion venture arm of hedge fund Pequot Capital Management, but in March 2008, it was spun off as a separate business and renamed. Over the past dozen years, the venture firm has opened seven funds, and it currently has $1 billion in actively managed and unallocated capital. The fund focuses on emerging media and advertising, data and analytics and infrastructure startups.[21]

SVB Financial Group[edit]

SecondMarket's acquisition of InsideVenture led SVB to become an investor in SecondMarket in October 2009. SVB Financial Group provides financial services to emerging, growth and established technology companies in the life science, venture capital/private equity, and premium wine markets.

New Enterprise Associates[edit]

SecondMarket's acquisition of InsideVenture also led NEA to become an investor in SecondMarket in October 2009. New Enterprise Associates (NEA) is a venture capital firm specializing in investments in venture growth equity at all points of developments, with a 60 percent focus on seed and start-up stage companies.

Horizons Ventures[edit]

SecondMarket secured a series B round from Horizons, the investment arm of Chinese business magnate Li Ka-shing, in January 2010.

Competitors[edit]

Key Board Members/Advisors[edit]

  • Barry E. Silbert is the Founder and CEO
  • Bill Seidman was a Senior Advisor to SecondMarket from 2008 until his death on May 13, 2009.
  • Larry D. Lenihan, Jr. is the Founder, CEO, and Managing Director of FirstMark Capital.
  • Chamath Palihapitiya is the Founder of The Social + Capital Partnership

References[edit]

  1. ^ "About Us". SecondMarket. Retrieved June 18, 2010.
  2. ^ a b Bloomberg Markets, June 2011, pp. 33-44.
  3. ^ "SecondMarket,Inc.". BusinessWeek. 2009-12-10. Retrieved 7 December 2009. 
  4. ^ a b "SecondMarket Starts First U.S. Trust for Bitcoin Virtual Money". Bloomberg. 2013-09-26. Retrieved 27 September 2013. 
  5. ^ a b "SecondMarket Establishes New Bitcoin Trust for Accredited Investors". Entrepreneur. 2013-09-26. Retrieved 27 September 2013. 
  6. ^ Restricted Stock Partners Secures Funding From Pequot Ventures. September 19, 2007
  7. ^ "SecondMarket Eyes Asia Expansion". CNBC. Retrieved June 18, 2010.
  8. ^ Epsom, Rip (2011-11-01). "Former Facebook VP Chamath Palihapitiya Invests $15 Million In SecondMarket, Joins Board". TechCrunch. Retrieved 2013-04-29. 
  9. ^ Ante, Spencer (2011-11-02). "SecondMarket Gets Its Own Funding". The Wall Street Journal. Retrieved 2013-04-29. 
  10. ^ Thirty-One Visionary Companies Selected as Technology Pioneers 2011
  11. ^ Anderson, Jenny (2005-05-28). "Market Place; Seeking Unlimited Success From Providing a Market for Restricted Stock". The New York Times. Retrieved 7 December 2009. 
  12. ^ Zuill, Lilla (2007-09-19). "Restricted, Distressed Securities Get E-marketplace". Reuters. Retrieved 7 December 2009. 
  13. ^ "Liquidating Frozen Auction-Rates". CFO.com. 2008-04-29. Retrieved 7 December 2009. 
  14. ^ Restricted Stock Partners Acquires T-REX "Restricted Stock Partners Acquires T-REX". dBusinessNews. 2009-06-09. Retrieved 7 December 2009. 
  15. ^ "Private equity investors flock to sale platform". Financial Times. 2009-02-24. Retrieved 7 December 2009. 
  16. ^ a b Demos, Telis (2009-04-14). "Trading the untradable pays off". CNN Money. Retrieved 7 December 2009. 
  17. ^ "With Private Trades, Venture Capital Seeks a New Way Out". New York Times. 2009-04-22. Retrieved 11 January 2010. 
  18. ^ "How Can Twitter And Facebook Employees Cash Out Now". Washington Post. 2009-06-23. Retrieved 7 December 2009. 
  19. ^ "California IOUs set for trade". dBusinessNews. 2009-06-16. Retrieved 11 January 2010. 
  20. ^ a b c "SecondMarket plans regulated bitcoin exchange". Reuters. 25 February 2014. 
  21. ^ "Crunchbase FirstMark Capital". Cruncbase. 2009-11-13. Retrieved 11 January 2010. 

Further reading[edit]

External links[edit]