A Secondary Market for Shares in Venture Backed Companies?

Both Fred Wilson and the New York Times have written about a movement toward trading illiquid tech stocks. There’s already lots of skepticism expressed in the Times but it's perhaps worthy, under the ‘raising capital’ theme of the blog to ponder whether such a market could ever come to pass.

On the one hand, as an entrepreneur, let me agree with Fred and say that, in theory, it would be great.

In practice, not going to hold my breath. We’ll get to the biggie, but let’s start small. The first issue is that it really wouldn’t help that many people. No one wants to allow founders or current employees to sell because it creates incentive problems. As for former employees, certainly no one’s really motivated to cash them out. As for the actual VCs, management has a lot of interest in not letting them sell out (unless there’s a board level war going on, but even then the negative PR is a tough trade-off) because of the implications that, at best, growth has plateaued. So who does it really help? Maybe, maybe angel investors…but again, would be surprising to see VCs endorsing something that helps others get out before they do. Which brings us to the second point….

Probably 50% of governance documentation talks about who, how & when shareholders can sell stock. For effective secondary markets to emerge, all of that boilerplate language, which has been tightened and standardized over the last 40 years of venture investing would suddenly have to start giving way. Seems unlikely. Now, jumping tracks to a more fundamental point….

You’ve got tremendous information asymmetry in these markets, far more than in other securtizable markets. Most of the shareholders are board-level insiders. As much as I might love to own a piece of Facebook in concept, do I really want to be the guy buying shares from Mark Zuckerberg? To get over that, you need far greater transparency. And where’s there is purported transparency, there is inevitably going to be….

Regulation. If you don’t believe that to be true in this day and age, I’d argue you aren’t paying attention. And if there’s transparency and regulation, well, it’s just a new-fangled public market. Maybe therein lies a clue to the real problem: the public markets themselves are broken. That’s a post for another day…  

The Dominos Crisis: What’s the Big Deal?

A tweet from PR handler Adam Keats of Weber Shandwick today took me to an article by folksy writer Garrison Keillor that talked about the Dominos video blow-up . Keillor’s takeaway is that it’s ‘snot a big deal’ and everyone should just relax. At some level, Garrison’s obviously right. There’s no way that video was the grossest thing uploaded to YouTube that hour, let alone day, so how on earth could it be a big deal?

Yet it is a big deal. It wasn’t news just among information desperate twitterers or the media or district attorneys, this was meaningful to hundreds of thousands, if not millions, of people. At Expo, we asked our members what they thought of the Dominos video and they told us that, yes, it was a big deal. Knowing our opinionated members, if it was no big deal, they’d tell us…no big deal. But they didn’t. Their noses were crinkled and their nausea was palpable.

So what’s the difference between a thousand Saturday Night Live gross-out skits and this video? It’s simple. It’s the brand. It’s the fact that, no matter how much we say we’re immune to advertising and branding and all that stuff, brands matter to us and they matter a lot. This wasn’t non descript cafeteria food, this was Dominos. And of course the most powerful component in restaurant branding is consistency; a consistency now marked in Dominos case with images that many of us will struggle to get out of our minds. We’d love to intellectualize it away as irrelevant, not representative, but the beauty and power of brands is that….we can’t.