Venture Voice – interviews with entrepreneurs

Entertaining Entrepreneurship

VV Show #59- Barry Silbert of SecondMarket

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Any shareholder in a startup can tell you there’s a big difference between paper wealth and cash. Short of an IPO or outright acquisition, there are few options to cash out for the shareholders of even the most thriving private companies. Barry Silbert is determined to change that with his company SecondMarket — an exchange like the NASDAQ for private stock and other illiquid assets. He founded the company in 2004 focused on restricted stock, and quickly reached profitability with only $350,000 in angel funding. The road to this point was not without challenges; Barry’s business partner was diagnosed with cancer and passed away as they were establishing the company. In 2008, SecondMarket made $20 million in revenue. Barry’s success has not tempered his ambition as he’s spent 2009 aggressively moving into new asset classes such as private companies (Facebook stock is already being traded on his platform), limited partner interest in venture capital firms and even California IOUs. Hear how this former bankruptcy banker did it and why he believes “The sky’s the limit” for his business.

2:20 Early interest in entrepreneurship

2:50 Life after college: Bear Stearns, Smith Barney, & Houlihan Lokey

5:00 Why the switch to entrepreneurship?

5:15 His family thought he was crazy to leave banking to start a company: “I never told [my now-wife and family] how much money I was making [as a banker] until I had left”

6:15 The need for an illiquid asset market

8:30 Advice: Don’t raise money. Don’t build tech. Just start doing these transactions

10:00 Raised $350,000 in angel financing for SecondMarket

11:15 Early success in blocks of restricted stock

13:00 Matching buyers and sellers with a spreadsheet

13:50 Standardizing legal paperwork

15:15 Technology needed to scale was internal not external

16:30 The early team

17:15 Built first trading system in 2006

18:10 Revenue ramp: $1M in 2005, $2.5M in 2006, $5.5M in 2007, charging between 2-4% in fees

22:50 The passing of a partner

28:15 The value of marketplaces

29:15 “You’re going to make hiring mistakes.”

30:20 Raised $3.8M from FirstMark Capital for 25% of company, yielding a valuation of $15.2M, to apply the same model to different asset classes

31:55 $20M in 2008 revenue

32:15 A major opportunity in auction rate securities

37:15 New initiatives (asset classes) for the company: bankruptcy claims, limited partnership interests, toxic assets, private company stock, California IOUs

40:30 On launching a new market: “Generally speaking, it’s not very expensive for us to start a new market.”

41:50 On the private stock market: “This is the market we’re most excited about right now.”

43:10 “We’ve become the ad hoc market for Facebook stock.”

46:00 “We’ve opened up SecondMarket to venture backed, private companies who want to raise another round.”

50:25 “Private companies are staying private longer.”

54:30 $1.5B in transactions in 5 years, $1B in last 12 months

59:20 How big can this market be? “The sky’s the limit.”

1:00:00 What do you spend your time on now?

1:01:20 “We have no plans to go public.”

1:02:20 Parting thoughts for listeners

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