Facebook, Twitter and peers for sale - privately

Facebook, Twitter and peers for sale - privately
No acquisition, no IPO, no problem: Private exchanges springing up to combat lack of liquidity

NEW YORK (AP) -- Scott Painter makes his living betting on startup companies, having played a role in launching 29 of them over the years. But with the bad economy choking initial public offerings and acquisitions, Painter is now backing an idea that makes it easier for insiders like him to sell shares in their companies even before they go public.

SharesPost, which was founded by Painter's business partner, Greg Brogger, launched publicly in June. Through SharesPost's Web site, Painter is trying to sell shares in several companies he helped found, including car pricing startup TrueCar.com. He also wants to buy shares in companies that are far from an IPO, like short-messaging site Twitter and business-networking site LinkedIn.

SharesPost is one of a few private stock exchanges that are emerging to fight what venture capitalists call a liquidity crisis. These exchanges give stakeholders an alternative way to trade their shares in hot startups like Facebook for cold, hard cash -- without having to wait years for an IPO.

Employees at startup employees often put in long hours but get salaries that can be 20 percent less than their peers at public companies. In return, they get stock or options that they hope will be a path to sports cars and summer homes after their company goes public or is bought out.

Given this, services like SharesPost could help startup workers get some cash while awaiting a distant IPO that might never even get off the ground. Most people won't be in on the action, though, since these exchanges are only open to a small pool of buyers.

And it's not clear how much -- or how little -- stock has changed hands through them. In its short life, Santa Monica, Calif.-based SharesPost said it has executed one $25,000 transaction, while another service, New York-based SecondMarket, said it has completed about 40 transactions in the past year worth about $150 million.
Still, if they manage to thrive, these exchanges could help the economy. By selling shares on a private exchange, an investor can free up funds to put into other startups. And institutional investors could use these services to broaden their holdings to include fast-growing companies that have yet to go public.

The methods of these private exchanges vary. SharesPost uses an online bulletin board to introduce buyers and sellers. SecondMarket links the parties and lets companies set up their own mini-markets that they control, while Redwood City, Calif.-based XChange is rolling out an online system that will allow buyers and sellers to connect and directly trade shares for cash.

All are open just to institutional investors -- organizations like venture capital firms or pension funds that manage at least $100 million in assets -- and individual accredited investors. That category includes people with a net worth of at least $1 million, or salary of at least $200,000 for the last two years.

The concept is not entirely new. Nyppex, formed in 1998, facilitates private-company stock trades, and a few companies with similar offerings emerged during the last economic downturn but failed to gather much steam. Among the problems: Determining a fair price for a private company's stock is tough without much public information.

This time, however, employees and investors are more aggressively looking for a way to get a return on their dedication and funding. More than a dozen companies have priced IPOs in the U.S. this year, down from 35 in the first half of 2008, according to research firm Renaissance Capital. In the same period of dot-com-crazy 2000, there were 219 IPOs in the U.S.
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