* SharesPost founder to lead San Francisco-based venture
* Companies hope to launch new market later this year
* Nasdaq says fund companies interested in participating
By Aman Shah and John McCrank
March 6 Nasdaq OMX Group Inc plans to
create a market for trading shares of unlisted companies in a
joint venture with trading platform SharesPost Inc, tapping into
increasing investor interest in private firms.
The new venture, Nasdaq Private Market, may help Nasdaq's
main exchange capture a greater share of listings from rival
NYSE Euronext when companies go public, said Josef
Schuster, founder of Chicago-based financial services firm IPOX
"NYSE was taking a lot of share away from the Nasdaq even in
tech listings, so I think it's kind of an opportunistic move for
Nasdaq," he said.
SharesPost now lists more than 200 private companies,
including Pinterest, Foursquare, eHarmony and Tumblr.
Nasdaq will own most of the new venture, which will be based
in San Francisco and led by SharesPost founder Greg Brogger.
They hope to launch the new market later this year. Nasdaq
needs regulatory approval to run a broker-dealer and an
alternative trading system, said Bruce Aust, executive vice
president at the exchange operator.
New York-based Nasdaq has been talking to companies ranging
from venture capitalists to fund companies, and including 30 to
50 private businesses, over the past year about the idea, Aust
SharesPost, based in San Bruno, California, began in 2009.
Its fortunes rose in step with technology startups such as
Facebook Inc and LinkedIn, which traded on the
market before they went public.
But it ran into regulatory trouble when the U.S. Securities
and Exchange Commission (SEC) stepped up scrutiny of Wall Street
banks and electronic markets offering investors a chance to
trade shares in hot technology companies before they went
Privately held SharesPost was charged by the SEC for failing
to register as a broker-dealer before offering securities in its
marketplace. It registered as a broker-dealer and paid $80,000
to settle the allegations, while Brogger, the company's founder,
COURTING THE BUY SIDE
The catalyst was the Jumpstart Our Business Startups Act
(JOBS), passed last March, which increased opportunities for
trading unlisted companies, Nasdaq's Aust said. Specifically,
the law increased the amount of shareholders an unlisted company
can have to 2,000 from 500.
"We feel that 2,000 shareholders could be a very good
shareholder base, and we talked to the buy-side community, and
we think there is a lot of interest in private markets and
secondary markets," he said.
Bringing more "buy-side" or fund companies into the mix adds
a huge pool of capital to the private market, making it easier
for investors to exit, including making it easier for employees
who may have a large portion of their compensation tied to
shares to sell them when they need to.
The new venture gives SharesPost a leg up in the
increasingly crowded market for trading unlisted stocks, said
Jay Ritter, a finance professor at the University of Florida.
"Most young companies that go public in the U.S. go public
on the Nasdaq, and so the joint venture gives SharesPost a lot
of credibility," Ritter said.
SharesPost's broker-dealer and investment advisory business
will continue to operate separately from the joint venture.