Private company secondary markets - November 2011

583 views
526 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
583
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
13
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Private company secondary markets - November 2011

  1. 1. Private Company Secondary Markets December 2011
  2. 2. Builders Fund Innovators Fund Private Markets Liquidity Long/Short Equity • Private market fund • Public markets fund • Global Internet companies • Global Internet companies • Solve cap table and liquidity needs • Market neutral - up to 200% gross • Access to the top venture backed • Low beta and low volatility companiesCopyright 2011 HighStep Capital. All rights reserved.
  3. 3. Financing Structures Company Primary Secondary LiquidityCompany issues “alphabet” Individuals or small groups Issuer sponsored round preferred shares to of selling shareholders liquidity program byinvestors who sign various third-party investors shareholder agreements pursuant to 14(e) Dividends Redemption Company distributes Company uses excess excess cash to all current cash to repurchase stock shareholders without from certain shareholder decreasing their ownershipSource: Goodwin ProctorCopyright 2011 HighStep Capital. All rights reserved.
  4. 4. Characteristics of a Secondary InvestorInvestors not operatorsPassive approach – no board seatsTypically more analytical – love data Mid-cycle investorsPatient investorsEquivalent to investing in a small cap companyCopyright 2011 HighStep Capital. All rights reserved.
  5. 5. Secondary Investors are Not Venture Capitalists Primary Secondary Company issues “alphabet” Individuals or small groups round preferred shares to of selling shareholders investors who sign various shareholder agreementsWe solve liquidity problems for shareholders. VCs buy shares in emerging business We buy shares from shareholdersDodd-Frank: 20% non-qualifying ruleCopyright 2011 HighStep Capital. All rights reserved.
  6. 6. Time to Exit has Increased Median Age at IPO 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 NVCA, Jan 2011Copyright 2011 HighStep Capital. All rights reserved.
  7. 7. Why Companies Mature Before an IPO IPO performance from 1980-2010 Sales # of IPOs Avg 1st Day Return Avg 3yr Return <$50m 3,897 23.60% 5.00% $50m+ 3,457 12.00% 39.10% IPO research from Prof. Jay Ritter, University of Florida – as of 6/1/11 http://bear.cba.ufl.edu/ritterCopyright 2011 HighStep Capital. All rights reserved.
  8. 8. The IPO Gap is Widening Private company secondary funds are the new small cap funds Private Secondary Environment in 1990s Today’s Environment Exchanges IPO Public VC Markets Public VC IPO Gap Markets1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Source: Arcstone Research Copyright 2011 HighStep Capital. All rights reserved.
  9. 9. The IPO Gap Creates the Opportunity Public VC IPO Gap Markets 1 2 3 4 5 6 7 8 9 10 • Buyers & Sellers Maturing • Ecosystem Emerging • Laws DevelopingCopyright 2011 HighStep Capital. All rights reserved.
  10. 10. Secondary Investors Relieve the Pressure Cooker • Employee cash constraints • Investor Fatigue • VC fund life • 500 shareholder limitCopyright 2011 HighStep Capital. All rights reserved.
  11. 11. Ecosystem Is DevelopingMarketplacesBanks & Law FirmsResearch & Sales Funds Social + Capital Copyright 2011 HighStep Capital. All rights reserved.
  12. 12. Sample of Companies TradedCopyright 2011 HighStep Capital. All rights reserved.
  13. 13. IPO Gap Historical CompaniesCopyright 2011 HighStep Capital. All rights reserved.
  14. 14. Legal Framework is Developing•General Solicitation Rule – Private Shares •413-11: HR 2940 – Access to Capital for Job Creators Act – Rep McCarthy (R-Cali)•Simplified Registration: $5m => $50m •421-11: HR 1070 – Small Company Capital Formation Act – Rep Schweikert (R-Ariz)•Crowdfunding Rule: up to $5m •407-17: HR 2930 – Entrepreneur Access to Capital Act – Rec McHenry (R–NC)•500 Shareholder Rule => 1,000 shareholders •HR 2167 – Private Company Flexibility and Growth Act – Rep Schweikert (R-Ariz)•Open Issue: Investing Without Company FinancialsCopyright 2011 HighStep Capital. All rights reserved.
  15. 15. Copyright 2011 HighStep Capital. All rights reserved.
  16. 16. Facebook Shares Trends$40.00$35.00$30.00$25.00$20.00$15.00$10.00 $5.00 $0.00Source: SharesPostCopyright 2011 HighStep Capital. All rights reserved.
  17. 17. Facebook Shares Trends 10% 5% 0% -5% -10% -15% -20% Facebook S&P 500Source: SharesPostCopyright 2011 HighStep Capital. All rights reserved.
  18. 18. Facebook Shares Trends SharesPost Private Markets11/17/2011 75,000 $30.00 11/9/2011 250,000 $30.0010/27/2011 70,000 $32.00 11/22/2011 3,500,000 $30.00 9/27/2011 50,000 $32.10 11/9/2011 500,000 $30.50 9/1/2011 50,000 $33.00 11/9/2011 9,000,000 $30.50 8/17/2011 100,000 $33.00 10/28/2011 4,000,000 $31.00 8/4/2011 150,000 $34.00 11/9/2011 500,000 $31.50 7/20/2011 150,000 $35.00 11/9/2011 3,000,000 $31.50 7/7/2011 150,000 $35.00 11/9/2011 10,000,000 $31.50 11/9/2011 10,000,000 $31.75Copyright 2011 HighStep Capital. All rights reserved.
  19. 19. How To Buy Facebook SharesCopyright 2011 HighStep Capital. All rights reserved.
  20. 20. How To Buy Facebook Shares• Step 1: Buyer decides to buy Facebook shares• Step 2: buyer hires B/D as a buyer agent• Step 3: buyer agent puts word into B/D cloud• Step 4: Engineer hires a private wealth manager• Step 5: PWM hires lawyer or B/D as seller agent• Step 6: seller agent puts word into B/D cloudCopyright 2011 HighStep Capital. All rights reserved.
  21. 21. How To Buy Facebook Shares• Buyer: Non-binding Letter of Intent: shares, price, buyer• Seller: returns an Expression of Sale: price is binding• Buyer: produces a proof of funds• Seller: produces a proof of shares• Seller’s attorney: arranges escrow & produces a stock transfer agreement• Signatures: both parties sign & date• Seller’s attorney: delivers STA to Facebook for RoFR• Closure: RoFR waived, shares & $$ are exchangedCopyright 2011 HighStep Capital. All rights reserved.
  22. 22. Phase 1 = Wild West B/D Economics: $250m / $32 = 7.8m shares * (4% com * $32) = $10mCopyright 2011 HighStep Capital. All rights reserved.
  23. 23. Phase 2 = Company Liquidity Programs• A shareholder selling plan initiated by the company with board approval• Buyers are pre-approved• Minimum investment sizes are established• Employee sales policies are established• Regular sales windows are established• Select financials are disclosed with pre-approved buyers under NDA• Organized access to management & ongoing reportingCopyright 2011 HighStep Capital. All rights reserved.
  24. 24. Examples P S P R CL P D P CLSource: Goodwin ProctorCopyright 2011 HighStep Capital. All rights reserved.
  25. 25. Crowdsourcing – Kickstarter is coolCopyright 2011 HighStep Capital. All rights reserved.
  26. 26. Pabst Blue Ribbon - Crowdsourcing on Steroids Goal: raise $300m to buy Pabst Blue Ribbon $5: Bottle Membership $25: Six Pack Membership $100: Case Membership $250k: The BrewMeisterCopyright 2011 HighStep Capital. All rights reserved.
  27. 27. Private Markets are Getting an Overhaul Super Angels VC Crowdsourcing Accelerators Private market fundsCopyright 2011 HighStep Capital. All rights reserved.
  28. 28. My Market Predictions • IPO Gap widens • Companies adopt liquidity programs • Venture capitalists get their 5 year investment cycle back • Hedge funds & Mutual funds move in • Private Market Liquidity Funds emerge as a new asset classCopyright 2011 HighStep Capital. All rights reserved.
  29. 29. Why Social Media is so hotCopyright 2011 HighStep Capital. All rights reserved.
  30. 30. Google’s Money MachinePaid SearchNatural Search Copyright 2011 HighStep Capital. All rights reserved.
  31. 31. Google PageRankCopyright 2011 HighStep Capital. All rights reserved.
  32. 32. Google PageRank - NFL www.nfl.com Espn.go.com/nfl En.wikipedia.org/national_football_league Natural Search Aol.sportingnews.com/nfl Bleacherreport.com/nfl www.nflshop.com Sports.yahoo.com/nfl msn.foxsports.com/nfl www.fansedge.com/nfl_shop Paid Search www.kohls.com www.target.com Chicago BearsCopyright 2011 HighStep Capital. All rights reserved.
  33. 33. Google AdWordsCopyright 2011 HighStep Capital. All rights reserved.
  34. 34. My Social GraphCopyright 2011 HighStep Capital. All rights reserved.
  35. 35. Social Media Hasn’t Found Their AdWordsNatural Search Copyright 2011 HighStep Capital. All rights reserved.
  36. 36. AdGrok will be Twitter’s Ad PlatformCopyright 2011 HighStep Capital. All rights reserved.
  37. 37. Promoted Tweets - ExamplePromoted Tweetsare always the toptweet in the timelineCopyright 2011 HighStep Capital. All rights reserved.
  38. 38. What is Possible – People RankingCopyright 2011 HighStep Capital. All rights reserved.
  39. 39. Jason Jones jjones@highstepcap.com 914.315.9751 @cardinalrosehttp://www.slideshare.net/jjones23 New York | San Francisco

×