August typically equals unbearable heat, last-minute vacations, and a lot of catching up with family and friends. With that said, we want to catch up with you and share what we’ve been up to over the past few months.
First off, we partnered with a number of dynamic private companies over the last six months who utilized our capital introduction or transaction management services to help them create liquidity programs tailored to their goals and objectives.
- Capital Introduction: When a company wants to utilize SecondMarket to bring buyers to a transaction, we work with the company to define the size of the potential investment and the desired investor profile. We then find buyers that fit the profile through our curated network of accredited and institutional investors, and present the buyers to the company, who decides which investors to include in their liquidity program on SecondMarket.
- Transaction Management Services: Companies utilize our online enterprise solution, which provides a centralized platform for automated transactions and better efficiency. Companies are increasingly using the services to perform block trades of stock, tender offers and company buy-back programs.
So why did companies use our services? Well, we surveyed our clients and found that they partnered with us in 1H 2012 for a number of reasons. Some companies’ sought to re-align their investor base in order to replace early shareholders with new strategic investors who are supportive of the company’s long-term vision. Other companies used SecondMarket as an effective tool to attract and retain key employees, and some simply wished to satisfy liquidity demands of their shareholders.
Although we don’t publicly divulge specific names of our clients, we are excited to reveal a six month company snapshot that, for the first time, paints a detailed portrait of the “typical” private company that uses SecondMarket. This composite was created by using data from the companies that we partnered with to create customized liquidity programs in the first half of 2012.
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Industry Breakdown
The next chart is a breakdown of the first six months of 2012, by industry of the companies. Companies in the Gaming industry made up nearly half of the liquidity events in 1H 2012, with 48.3%, and Consumer Web and Social Media came in second, with 21.8% of liquidity events. The Education and Financial Services sectors represented 21.8% and 10.9% of liquidity events, respectively, and the Entertainment and Music industry rounded out the pie with a small sliver of 0.6% in completed liquidity events.
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Buyer Type
The following chart provides detail on the types of buyers on SecondMarket in 1H 2012. Hedge funds comprised the lion’s share of transactions by dollar value, with 47.9%. Family offices followed suit (21.5%), with asset managers (15.3%), issuers (8.9%), accredited individuals (6.0%), and private equity funds (0.3%) among the investors who joined the companies’ shareholder bases.
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Seller Type
As for sellers, companies allowed a large percentage of current employees (59.8%) during the first half of the year to secure some liquidity and taste some of the success they created. Former employees (24.1%), investors (13.8%), and a small number (0.6%) of founders were also approved by the companies to obtain a controlled amount of liquidity through SecondMarket.
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We allow institutional and accredited individual investors on SecondMarket to submit Indications of Interest (“IOIs”) in private companies (regardless of whether the companies are currently running liquidity programs). Companies can use this information to help guide their decision-making and timing for capital raising and/or secondary liquidity.
Buyside Demand by Industry
The chart below breaks down the buyside IOIs by industry in the second quarter of 2012. Consumer Web and Social Media maintained the top spot in Q2, with nearly $265 million in buyside demand. Software saw nearly $50 million of interest from potential investors, and Mobile followed with $38 million of demand. Other industries, like Music and Entertainment ($23 million), Financial Services ($22 million), and Payments ($20 million) also saw increased buyside interest in the second quarter.
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Buyside Demand By State
We have also created a heat map that indicates investors’ demand based on their location. The map below highlights California, New York, and Texas as the top three states with the most investors submitting buyside IOIs on SecondMarket in Q2, but fair numbers of investors from burgeoning tech sectors like Washington, Illinois and Massachusetts also indicated their private company investment interests on the platform.
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Rising Stars
And now it’s time for the SecondMarket Rising Stars! Every quarter, we calculate the VC-backed startups with the largest quarter-over-quarter percent increase in total watchers on our platform, and provide you with a ranking of the most exciting startups. Previously a SecondMarket Newbie, Airtime scored the top spot in Q2, with a 207.7% increase in watchers (who says blowout, celebrity-filled launch parties are overrated?!). Warby Parker (+127.9%) and Stripe (+117.2%) held onto their second and third place spots, respectively. SoCal-based open-data platform,Factual, and Palo Alto-based creator of the Learning Thermostat, Nest, also graduated from the Q1 Newbies and made their debuts to the Q2 Rising Stars.
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Newbies
The SecondMarket Newbies list is all about momentum. These startups begin the quarter with less than ten watchers and gain significant traction over three months. Video “capture and share” startup Viddy, with 99 watchers, and video startup SocialCam, with 48 watchers, held the top spots on the Newbies list in Q2. SocialCam was subsequently acquired by Autodesk in July 2012. Cambridge-based Localytics, a mobile application analytics platform, stole the third spot in the Rising Stars ranking, and iCouch, a video-counseling site located in NYC, took fourth place. Rounding out the list was MyLife, an online personal relationship manager based out of LA.
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COMMENTARY: After reviewing SecondMarket's Q2 2012 Report, there are some glaring changes from SecondMarket's Q3 2011 (See my blog post dated November 1, 2011), when Facebook, Twitter, Groupon, Zynga and Foursquare ranked #1, #2, #3, #4 and #5 respectively among the most watched startups. Facebook had their IPO in May 2012, and we all know what a disappointment that was and continues to be. Groupon and Zynga also had their IPO's, but they have also been huge disappointments and are now trading in low single digits. Groupon has yet to generate a profit and Zynga is losing gamers at incredible rates. Poor foursqure. The last time I looked, foursquare had 15 million users, but where are the revenues? LBSN's are mostly a fad, they were interesting when they first appeared, but their time has come and gone. In 2011 I predicted there would be a "train wreck" among LBSN's, and I think I am dead-on again.
Consumer web, gaming and social media continue to dominate the list of private companies but let's get real, there are no "real" stars among the private companies listed as stars by SecondMarket. Facebook acquired Instagram for an unheard of price of $1 billion (most of it stock). That's a key reason why social media did so well in Q2 2012. Poo, poo. I am willing to bet you a case of Chateau Margaux that not a single one of those so-called stars has generated significant revenues or even a profit. I am truly disappointed that startup companies like Airtime, Warby Parker, Stripe, Factual and Nest were listed as the "stars." If these are the best, then the tech IPO market is truly in trouble. It's sad, but I doubt that SecondMarket is doing as well as it once was. Their old stars are all losers, every single one of them with the exceptions of Yelp and LinkedIn. LinkedIn continues to maintain its high valuations, but for how long? I am afraid that Facebook fucked it up for everybody.
Courtesy of the Q2 2012 Secondary Market Report issued by SecondMarket
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