Did you know that there are stock markets out there where shares of privately held companies such as Facebook and Zynga can be bought and sold?
A gold star to you if you did, because I certainly didn’t know this.
A new startup in San Mateo, CA called Xpert Financial is set to launch soon, offering an automated online marketplace where companies and approved investors can buy and sell shares of privately held companies. Apparently there’s been a recent surge of online markets springing up to facilitate the exchange of privately held company stock. SecondMarket and SharesPost are two of the companies that have been operating for awhile now as “secondary liquidity solutions.”
While Xpert Financial isn’t the first service of its kind to open its doors, it does boast a stamp of approval to be an alternative trading system from the SEC, something no other secondary market has currently. Whether that actually translates into any real world benefit currently is still up in the air, but perhaps it will help you sleep better at night after dropping a billion dollars on a bunch of private stock shares.
Xpert Financial also promises to be more “company friendly” by offering channels for them to disseminate information to prospective investors. The other sites currently have a more investor-focused strategy.
What’s the difference between these secondary liquidity solutions and a normal stock market? Well, for starters, these private companies have no obligation to disclose any financial information. They’re basically subject to no regulation by the government. Pretty sweet if you’re a startup, eh? One requirement for staying private is that the number of possible shareholders for a series is restricted to 500 or less. If enough shares change hands through these new secondary markets, though, a company could find the the SEC knocking on their doors.
It’s a double edged sword if you’re looking to buy into these companies. Unless you’re buying into a “sure thing” like Facebook, you could get burnt pretty badly by blindly investing in a company that could be built on a house of cards. However, it’s the only way you can get in on privately held companies without working at them or being an incredibly wealthy VC.
So the upshot is if you have the connections and wherewithal, as an accredited investor or QIB, you could own a piece of Facebook. Think of how jealous you’d make your friends. So what if they got into the new Facebook Pictures beta and you didn’t. You’d just whip out your Facebook stock certificates and shove them in their face. That’d shut ‘em up quick. Especially after the news yesterday that Facebook is valued at $50 billion after a $500 million Goldman Sachs investment. Xpert Financial plans to help these companies like Facebook go public do an XPO (Xpert Private Offering).
If you’re interested in reading more this exclusive stock exchange world, TechCrunch has a great primer on what these secondary markets are all about here.
Q&A with Thomas Foley, CEO of Xpert Financial:
1. In your words, what does Xpert Financial do?
Xpert Financial, through its registered subsidiary Xpert Securities, operates Xpert ATS, the only fully-electronic Alternative Trading System for private company securities registered with the United States Securities and Exchange Commission. Xpert ATS supports both primary offerings and secondary trading of private company securities. Trading of private company shares are controlled by the issuing company, which authorizes both sellers and buyers. Private companies, qualified institutional buyers and accredited investors that are interested in more information may pre-register at www.xpertfinancial.com.
2. How do you differ in comparison to other second markets?
Xpert Financial is an approved Broker Dealer from FINRA and approved Alternative Trading System (ATS) from the SEC. We are the only company in the world with these approval for these types of transactions – online, electronic capital raising and secondary trading of private company shares. Xpert Financial focuses on creating a company controlled marketplace that allows companies access to capital at their terms, investors access to information, and shareholders access to liquidity. Second Market is a registered broker dealer and we’d love if they became a broker on our system.
3. How is Xpert Financial going to help the recession and change the future of finance?
The world is in a huge recession and there is stagnation of innovation in our country – but we have created a solution to help change that. We have created a market to spur productive entrepreneurship by: 1. democratizing access to capital, 2. keeping the US Markets competitive, 3. spurring job growth in America, and 4. rewarding entrepreneurs and their investors. We have taken the best of both private and public markets and created a new place for growth companies to grow, investors to invest, and service providers to provide services.
4. Are you raising any money right now?
Yes – we are currently raising capital to expand quickly now that we have approval.
5. Like any other broker-dealer, are the SEC and FINRA involved?
Yes – we have received our approvals from both FINRA and the SEC to become the first Broker Dealer and Alternative Trading System to do these types of transactions. We spent almost two years going through this process with regulators to make sure we followed all of their rules, our processes protected investors, and our system could protect the best interests of the companies. During this time the regulators issued three new rules pertaining to private markets and we think our business model was one of the main reasons this happened!
