A SecondMarket for small banks? Thank Facebook.
SecondMarket is expanding beyond tech as IPOs are about to cost it some of its biggest customers.
SecondMarket, which runs a market for trading stocks in private companies, is moving into regional and community banks.
That's quite a shift for the New York company, which since 2008 has created afor people looking to unload private shares of hot tech startups such as Twitter, Yelp, and Facebook.
Surely the driving force behind this strategy is the resurgent tech IPO market. More specifically, Facebook, which is aimingin what is expected to be the biggest Internet IPO in history. Facebook has been the most actively traded stock on SecondMarket since the company launched its private stock market.
While a SecondMarket representative said the move into banks is unrelated to the Facebook IPO, she also said the company has been anticipating the IPO for the last 18 months and, as a result, has been meeting with many of the most prominent VC-backed private companies.
In other words, it's been looking for more customers for a long time.
SecondMarket said it plans to have six banks signed up for its pilot program by the end of the month but that it couldn't yet name them. Its aim is to extend its customer base, giving someone who owns private stock in a small bank in Texas the ability to trade it as someone now can with a Facebook share.
Is this a good idea? Felix Salmon, of Reuters, writes that it could be very good for the banking industry, in part because community banks have hardly any way to raise capital, with the exception of selling the bank outright. Check out his smart piece here.
It's also wise for SecondMarket. SecondMarket and rival SharesPost have been successful because it takes far longer for companies to go public nowadays, particularly compared with the late 1990s, when some startups would IPO before they were even two years old.
Because of that, employees and former employees at tech startups see their stock options vest long before the company goes public (if that happens at all). These private markets rose up as a way to let those people sell some of their holdings. Almost 80 percent of the sellers on SecondMarket are ex-employees.
Even so, while it's taking longer to get there, tech IPOs are making a comeback, and that means SecondMarket, which takes a 3 percent to 5 percent transaction fee, is losing business. Just today, for instance, Yelp--also a favorite on SecondMarket--, confirming that come March it will no longer be a source of revenue for SecondMarket.