Poll Results: Yes, VC Firms Should Ban Partners from Trading on Secondary Exchanges

Copyright: Thomson Reuters/peHUB
Copyright: Thomson Reuters/peHUB

I’m disappointed by the results of our poll about whether venture capital firms should ban their partners from buying and selling private company shares on secondary exchanges such as Sharespost. The survey grew out of a great story by colleague Jonathan Marino that exposed the practice and the potential conflicts of interest it engenders.

A total of 130 peHUB readers took the poll, with 80 (or 62%) answering “yes” and 50 (or 39%) answering no. As I said in an earlier post, when I created the poll, I thought about coming up with a different question because I figured it was a no-brainer that most people would answer yes.

The yes’s outnumbered the no’s from the outset, but the longer we kept the poll open, the more people voted no. I’m more than a little curious as to why anyone would answer no for other than self-serving reasons.

Looking through the responses of those who shared “additional thoughts,” all are in support of a ban or some kind of restriction. With so many folks voting no, you’d think at least one would have taken the time to explain why a ban isn’t necessary. Alas, I think the lack of explanation speaks for itself

Eight people took the time to elaborate on their vote. Here’s what they had to day. Sadly (for VC industry) I have to agree with the first quote:

* “There is an inherent conflict of interest (time and attention). Comparing this statement in a public equity setting would make it a ridiculous statement. Having said that, it shows the state of integrity in the VC market.”
* “Yes, the firms have more information, and therefore, they should not be allowed to leverage this. They should be investing in their diversified portfolios alongside their investor base.”
* “Not only is there a financial conflict, but one of time. VCs should devote full time to their funds.”

* “Less concerned about buying; what about selling?”

* “If they invested based on revenue models and business models there is no reason for this nonsense to occur.”

* “The VCs themselves shouldn’t ban it, gov’t regulators should!”

* “Not without disclosure.”

* “Should be like Wall Street – not a blanket ban, but restricted lists and materiality tests (ie amount and frequency of trading).”