Employees Made Up Nearly Two-Thirds Of Private Stock Sellers on SecondMarket Last Year

As companies have stayed private for longer, CEOs and founders have gotten savvier about letting early employees liquidate or diversify their holdings in their companies. With several of the heavily anticipated consumer IPOs savaged over the last year in public markets, later-stage companies might be more conservative in the near future about when to go public.?That might be frustrating to employees, who have vested over four years. Allowing employees to sell stock is a retention strategy, albeit one that has to be carefully managed so people feel like they still have enough skin in the game to work hard. This trend is reflected in data from SecondMarket, a New York-based company helps arrange sales of equity in privately-held companies.?They found that 66 percent of all sellers of private company stock last year were current employees, up from just 11 percent the year before. It used to be that former employees made up most of the sellers, but now more companies are sanctioning current employees to sell stock.?SecondMarket says these so-called “Private Liquidity Programs” (or PLPs for short), help reward employees while reducing internal pressure to go public at an inopportune time in the market. SecondMarket became widely known after the market for private sales of Facebook stock blossomed. But after Facebook went public, SecondMarket had to make sure that could stand on its own legs with other clients. The volume of transactions did decline into 2012 after the Facebook IPO, but not as much as you would think. SecondMarket facilitated?$535 million in transactions last year, down 4 percent from the year before. The company says that it has a healthy roster of clients that aren’t $1 billion-plus companies. The median market cap is $569.5 million, which is on the borderline of what might be considered acceptable to do an initial public offering. With Zynga, Facebook and Groupon now public, the composition of SecondMarket’s clients changed. This was the first year consumer web and social media weren’t the dominant category.?Software companies made up 33.9 percent of the total, followed by consumer electronics, which had 26.4 percent. Unsurprisingly, the top kind of buyer were institutional investors, who were chosen by the issuer (or the company selling the stock). After that, about 10 percent of the transactions were share repurchasing agreements where the company itself buys stock back from early investors and employees. As we said above, the top seller type were current

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