When The Market’s Broken, Start Another

I talked to Barry Silbert, CEO of SecondMarket, a few days ago about the company’s plans to open the site to secondary offerings and private company stakes.

SecondMarket, which is based in New York City and has been around about four years, specializes in selling what it deems illiquid assets. It started out selling restricted stock in public companies, then later moved into auction rate securities and bankruptcy claims.

Now Silbert says he’d like to get build up an exchange for private company stock and LP interests in hedge, private equity and venture funds. His reasoning is pretty straightforward – with IPOs unavailable and M&A weak, stakeholders of private companies need another avenue to get liquidity.

Of course, SecondMarket’s not the only venture looking at this space. The idea of creating a market for illiquid venture and private equity assets gets talked about a lot, but looks difficult to put into practice.

Greenwich, Conn-based NYPPEX also runs a trading system for private securities, along with a large secondary practice. And last year, developers of three private exchanges announced the formation of a new maket called Portal Alliance, which will succeed the Nasdaq Portal Market. The effort combines components of two other private exchanges: GS TRuE (short for Goldman Sachs Tradable Unregistered Equity) and OPUS-5 (Open Platform for Unregistered Securities), which was launched in 2007 by Citigroup Inc., Lehman Brothers, Merrill Lynch, Morgan Stanley and The Bank of New York Mellon. (That effort never took off as many of those players, obviously, had bigger issues to manage.)

SecondMarket, which raised about $5.6 million in funding, according to Thomson Reuters, looks to be bulking up. The company has about 75 employees, and Silbert says that number’s likely to double in the next. The company announced last month that the face value of the securities traded on its platform surpassed the $1 billion mark.