You ever wish you could buy shares of stock in one of those hot private tech companies like Twitter or Facebook?
Well actually you can.
A company SecondMarket.com, acts a a middleman for insiders of private companies that are looking to sell some of their shares before the companies go public.
I inquired a few weeks ago about the availability of shares of Facebook.com and at the time they had 60,000 shares available at $31 per.
Are there drawbacks?
Sure.
Several.
To start, in most instances your going to have to buy the whole available block of shares in one transaction.
So in the example I’m talking about, 60,00o shares at $31 a share comes to an almost $1.9 million dollar investment; no small amount of change.
Second, there is no guarantee that the company you buy stock in will ever go public and even if they do, it could be years.
Third, there is no guarantee that the price the shares will sell for on the open market, once the company goes public, will be any higher than your paying.
Fourth, since your buying from insiders, your shares are most likely going to be locked up for six months from the date the shares start trading, and you won’t be able to sell them for that six month period. You might therefore be buying restricted stock for the same price or less than free trading stock is selling for once the company goes public.
On the other hand if you find a hot startup, and get in early, you might make a huge pop down the line if you have the cash to tie up for a while.
Big risk, big reward and the bragging rights to say you own stock in something less than a few hundred people in the world own.
Mike, at $31/sh, what would FB’s market cap be? How many shares outstanding are there? That number increases with each round of financing and after all options are exercised.
Stock price means nothing without market cap.
Google at $100 might look expensive but not if it’s only at 10B market cap… etc.
Tony
I don’t want to get into the economics of an investment, that is way beyond the blog or the post, I just wanted people to know that this option is available if they have interest in buying shares of private companies
Interesting service – thx for info, I will look closer into it.
FYI, your post is listed twice…
interesting concept
Another thing – most private companies have clauses in their Employee Stock Option Plan (ESOP) and angel investor agreements that forbid the sale of shares, or at least give the company the right of first refusal. While shares may be advertised for sale it doesn’t mean it will be easy to get a deal done. This is particularly true if the company is in the pre IPO stages or trying to sell. Non insider shareholders add huge issues to IPO or M and A transactions.
Essentially allowing more people the opportunity to take advantage of the same market inefficiencies that VCs have been working for years.
Andrew, there are reasons why these types of investments are only available to VC’s and angel investors. Mainly it’s because investing in startups and private companies is a whole lot more risky than in an established publicly traded company.
The little guy can lose his shirt doing this. That’s why I asked MHB for market cap etc for his FaceBook example.
This is an interesting development. You need to be really knowledgable in valuing companies before you start.
That’s an interesting way to gain exposure to Facebook. Couple questions though: would an investor be able to flip those shares and sell them back at a potentially higher price through second market? Also for insiders looking to hedge their positions they can simply enter into a swap agreement with any major investment bank to protect them from massive downward valuations…by the way who determines the valuation price?
Great article but as MHB and others mentioned, pps means nothing unless you know the total number of outstanding shares. I wonder when /how do you find that out in the process.
who can i buy a stock ?
Around 90 minutes after Facebook shares began trading, the price is sitting comfortably at around $41 per share, suggesting that Facebook’s bank got its sums more or less right. Things have quietened down a little as analysts start to look towards the end of the day and wonder where Facebook shares will close.
Join Discussion http://www.patexia.com/companies/facebook-inc-us/discussions
I think that is much more better to wait for a company becomes public and then you need to uderstand if it is still worth buying. There are so many bargains you can do every week with the already listed companies that I think there is no need to buy private stocks of a company. Well it may be worth if you do that many years in advance before its share become public but there is a huge component of risk in this activity. I prefer to buy stocks already listed in regular markets and to concentrate my attenction to the best ones of them.
Bye, Fredrick – http://www.mystocktobuy.com