I sat in on a conference call hosted by Sharespost, a marketplace for privately-held stock, today to learn more about buying stock in private companies. Nearly 100 Sharespost members were on the phone.
I thought I’d share the basics of how buying privately-held stock works using Facebook (the topic of today’s call) as the example.
The below information is based on knowledge as well as things I learned from today’s call (hosted by Tim Sullivan of Sharespost).
Some Facebook insiders, such as former employees, have begun to sell their privately-held shares through new private exchanges such as Sharespost, SecondMarket, Cogent Partners and Campbell Luytens.
A former Facebook employee is selling 50,000 shares of their Facebook stock, according to Tim Sullivan of Sharespost.
No. You typically buy membership units in a new fund that buys the Facebook stock for a group of investors and you own your pro-rata % of the fund.
For example, Sharespost in this case is offering membership units in a newly-formed Delaware-based LLC that will hold up to 50,000 of Facebook’s privately-held shares at $20 per share.
No. You have to be an accredited investor and you have to be chosen by the firm (e.g. Sharespost in this case) offering the Membership Units.
There may also be a minimum investment you have to make to be buy Membership Units (e.g. Sharespost is asking that you commit at least $100,000).
In this case, Sharespost is setting the price. They have closed an exclusive deal with the former Facebook employee to buy their 50,000 shares at $20 each (a total of $1 million).
Around $45 billion based on these Sharespost Membership Units.
Yes. Facebook can exercise their right of first refusal (also known as a “rofer” or “rofering”) on stock that their insiders are trying to sell within 30 days of the attempted sale of the Facebook stock.
Facebook rofers their purchase of privately held Facebook stock about half the time it’s available, according to Sharespost’s Tim Sullivan. He added that he heard that Facebook rofered stock at $18 per share recently.
Owners of the Facebook Membership Units could sell their stocks through Sharespost private marketplace (though it’s not guaranteed that there will be a buyer) or at the point of a Facebook IPO (Initial Public Offering).
note: there will be lock-up restrictions on the exact timing of your sale of the Membership Units/Facebook stock.
Sharespost is charging a one0time services fee of 5% and a distribution fee of 3% (of the total size of the round of funds they raise through the private placement).
It’s not publicly disclosed, but there are reports of Facebook’s revenues for 2010 being projected at anywhere from $1.5 billion to $2.4 billion, according to Tim Sullivan.
Tim says that there are reports of Facebook being more profitable (on a margin basis) than Google, one of the most profitable publicly-traded Internet companies.
Yes, there was a 5 for 1 split of Facebook shares October 1, 2010, according to Tim Sullivan.
Yes. Sharespost expects to offer additional Facebook shares in the future. Other private marketplaces likely will too.
New York-based Etsy is clearly a company on the move.
The gist of Etsy’s business is that they’re a marketplace of hand-made goods (sort of eBay but primarily hand-made)…here’s a screen shot showing you some of the types of things they sell.
Disclaimers: The #s I mention are not from Etsy (they are all estimates based on Arcstone Equity Research & SharesPost)
Special thanks to Arcstone & SharesPost for all the graphs below:
Outside Board Members
Some sites like Etsy are:
Fascinating Internet business on the move…a real niche dominator.
My best guess as to what will happen with Etsy: They will go public or be acquired by Amazon (Amazon loves to take out companies when they’re in the $100 million to $500 million per year revenue and if they own a niche).