A few days ago, I wrote in defense of secondary markets for shares of private companies against critics who argued they were dangerous, over-priced, take-advantage-of-the-little-guy markets (full disclosure: I'm an investor and Board member of SharesPost, a principal player in the space). Here's more data from the Pandora IPO that supports the arguments I and others have made that the secondary markets, SharesPost and others, are actually reasonably stable, fair places to trade -- at least compared to the public markets (which no one suggests we close down or more heavily regulate).
Some good points from the above-referenced post on NowStreetJournal.com:
- On 12/10, 409A price = $3.14.
- On 6/1, IPO filed at $7
- Final offering price was $16.
- Traded up to $26 (wonder who made the $$ here; hint, it wasn't Pandora), then ended the first day at $17.42 -- 6x the 409A set 6 months ago.
- Then, the stock dives and closes the week at $13.40, breaking the offering price.
Interestingly, on SharesPost, no Pandora trades ever occurred precisely because prospective buyers (most bids = $3 - $4/share) wouldn't pay the price sellers were demanding. So, remind me why many castigate the secondary markets among accredited investors in private shares as being over-priced? Could it be self-interest among large financial institutions who buy secondary shares and who might not want better price discovery?
Investor protections are important, so it's critical to maintain those, and, at least on SharesPost, we spend a lot of time, energy & effort doing so. Lesson here (at least for fast-growing companies that aren't yet profitable, established businesses) may be to "let it bake" a bit longer before going public, while allowing, via secondary markets like SharesPosts, some liquidity along the way to shareholders who want/need to sell. So far, based on the experience with Tesla, LinkedIn and Pandora (the three available data points), Sharespost and other secondary marketplaces are good capital markets solutions for that.