It's been about a year since Santa Monica-based SharesPost (www.sharepost.com) stepped into the market last year with a way for owners of privately held, venture backed companies to gain some liquidity, as well as diversify their holdings. As the M&A and IPO market has started to heat up, we thought it would be worth revisiting how the firm is doing, so we spoke to COO and co-founder Sam Hayes, to hear more about how things are going and if the revived exit market has affected how the firm does business.
There seems to be lots of exit activity lately, with IPOs and that sort of thing, what do you think of this market?
Sam Hayes: We think that there's been a structural change in the IPO marketplace, which makes SharesPost a great solution for growth companies. In term of IPOs, healthy IPOs are good for SharesPost and for investors. The key word, is it's healthy, which means that companies can perform well in the market even after they are public. We've been seeing, on SharesPost, a good number of IPOs this year, including companies such as Tesla Motors, which got lots of play, Green Dot, Fabrinet, Motricity, and so on. We focus on about 135 companies on SharePost, those that have $100 million plus in market capitalization or valuation, a five to ten year operating history, profitable companies, and those that are venture backed. We are trying to make the set of companies that we focus on the ones very likely to either go public, or have a successful exit, such as Playdom, which was recently bought by Walt Disney. We want to list companies that have an option to go public, or find a great exit for their investors.
How many companies listed on your marketplace have so far exited?
Sam Hayes: I don't have a strong number, but I believe there's been Quinstreet, Tesla, Fabrinet, Green Dot, Motricity, Investnet, and Click Technologies, plus some acquisition like Mint by Intuit. Our marketplace is also constantly adding new folks--we just added Gilt Group and Groupon, which are both strong companies. We see it as a natural ecosystem, with both those leaving SharesPost and those that are coming in.
How has that process gone as companies have been acquired or reached an IPO - have things played out as you expected?
Sam Hayes: I don't think it's anything different than the normal private to public change. As it relates to SharesPost, it's the same changes for our investors--the people who invested in Tesla when it was private, now are investors when it's public. That's obviously a great event and affirmation of their investment thesis.
Are those investors subject to the same kinds of lock-in periods and restrictions as other investors?
Sam Hayes: Yes, when these companies go public, the banks come and lock them up in the IPO process. As with any transaction occurring on SharesPost, the same restrictions on shares remain when they are transferred to another person.
With more exits, it seems like there might be less pressure for liquidity--one of the reasons SharesPost initially started its marketplace. Has that changed how you view where SharesPost fits?
Sam Hayes: It may be a mantra, but a healthy IPO market is good for SharesPost, because it's good for growth companies and good for investors. My role, before I was at SharesPost, was at Sun Microsystems, where I was involved in mergers and acquisition and software investments. There was always lots of talk about dual track for good companies like MySQL, where you have both the option to file to go public, or get purchased through M&A. You're still looking for the best value for shareholders. Having more options, and healthy options, really helps shareholders. What that ultimately means, is what we're going to be able to do is not just provide liquidity for people looking to sell their shares, and to be able to provide things like asset allocation, avoiding overconcentration on this thing they've been working on---but also we are able to provide investors a great return. That's better if big companies are looking to acquire companies.
Now that you've been operating awhile, what have you learned about the market for private companies?
Sam Hayes: I think what we've learned, is there is a fundamental disconnect for growth companies that has occurred. We have over 22,000 members who have joined SharesPost in just a year, and we've found people who are interested in getting exposure to this asset class. We've seen great growth, both from individual investors who are accredited, but also from institutions. I think you're seeing investors who realize this, just recently you saw Tiger Global, a big hedge fund, taking a big position n in LinkedIn. Very smart investors like that are going along with the thesis that, perhaps, not all of the great growth companies are in the S&P 500 and public, and that they can get outsized returns in this kind of asset class.
Finally, given your perspective, what do you personally think the exit market will play out in the next year, particularly for some of the more visible, yet still private firms such as Twitter and Facebook, and how that will play out?
Sam Hayes: It's interesting. The dynamics have changed. There was a time when you just couldn't grow a company to that kind of valuation, with that many employees, and not be public. I think they've demonstrated that they can, obviously. Is that best for the company? Is that best for the employees? Is that a value to shareholders? That's a very individual decision. I have certain ideas and thoughts, but ultimately, its up to those management teams and boards making decisions on behalf of shareholders. Facebook is a unique case, but I also love the story of Financial Engines, which was private for 14 years, and had a very good successful IPO and has done well in the aftermarket. But if you look at it, while the NASDAQ has been down around one to two percent this year, for IPOs, it's more like five percent. So, my sense is that what CEOs and boards need to figure out is how the performance of those companies will be in the public market. The question is, will Facebook continue to perform incredibly year over year, compared with Twitter or XYZ company---that's the real question.