Facebook. Tesla Motors. Twitter.
Many of today’s hottest companies are privately held, meaning they’re pretty much off-limits to the average investor.
No so much anymore.
For the better part of the past year, Greg Brogger has been fine-tuning his Santa Monica startup known as SharesPost, which offers an online marketplace for the buying and selling of private company shares.
Founded in January and launched publicly in June, the platform is intended to give the holders of private stock a way to get some immediate value from their holdings rather than waiting for an initial public offering, which can take years to complete. At the same time, small investors have a chance at getting in on the ground floor.
“There was a huge amount of pent-up demand” for this service, said Brogger, 41. “There’s really no central forum for buyers and sellers of private equity to connect. It’s a problem that I have long been aware of.”
SharesPost is not the first service aimed at facilitating private share transactions. Unlike others, however, SharesPost is largely an online bulletin board – in essence, a Craigslist for the investment community – and Brogger believes that its advantage lies in its simplicity.
Indeed, part of the appeal of SharesPost, he said, is that it is not a broker-based service and therefore does not charge a commission fee. Instead, the company makes its money off a modest $34 monthly subscription fee from each member.
Buyers and sellers, however, are subject to a flat $2,500 escrow fee, which amounts to 10 percent of the minimum $25,000 transaction, though just a fraction of the largest transaction the platform handles, which is $5 million.
Brogger declined to discuss the company’s revenue, but he expects the startup to be profitable within a year.
The site went live in mid-June with the sale of 2,500 shares at $10 apiece of Tesla Motors Inc., an electric sports car maker.
In a little more than two months, the site already has more than 6,000 registered members. The company, which has a dozen employees, hopes to have 10,000 members in the next few weeks.
The service is not open to everyone, however. While anyone can sign up to view the posted shares – and the site is getting roughly 1,000 views each day, according to the company – only accredited investors are allowed to trade the stock due to regulatory restrictions. Accredited investors include institutional investors with at least $100 million under management, or individual investors with a net worth of at least $1 million.
Some investment professionals, however, question the long-term viability of this type of business.
Andy Wilson, managing partner of Momentum Venture Management in Pasadena, said the idea is promising, but it remains to be seen whether interest will hold up under better economic conditions when liquidity is less of a concern. What’s more, he added, the company needs to be sure that it can consistently match buyers and sellers.
“Can you get the right combination of buyers and sellers? There are going to be plenty of sellers. How do you get the right set of buyers?” Wilson asked. “If you can’t consummate that matching capability, people will lose interest and stop going there.”
Still, Wilson, who looked at the business plan prior to the site’s launch but has no affiliation with the company, said there is interest in this type of service.
“If there are alternative ways to achieve liquidity, there is certainly interest,” he said. “The idea is big.”
Market opportunity
The idea for SharesPost had been percolating in Brogger’s mind for some time.
Brogger started his career as a securities attorney and eventually founded his own Web 2.0 company, an online automotive retail outfit called Zag.com Inc., with his business partner, Scott Painter. Shortly thereafter, he and Painter started BrightHouse Inc., a small angel fund and startup incubator out of which SharesPost was ultimately born.
For more than a decade, Brogger said he could see the frustration of private equity investors and startup company employees who had no formal way to buy or sell private company stock.
“Nothing had really changed since the early 1930s in terms of the way a buyer and seller would find each other,” he said.
But it was not until the financial crisis in late 2008 that Brogger decided to do something about it.
With the financial markets frozen, the number of initial public offerings dried up and many early and even late-stage investors became unable to cash out of their investments. “We thought to ourselves if ever there was a good time to launch this solution, now is it,” he said.
For more than a decade, companies have tried with varying degrees of success to facilitate private share transactions. Among the oldest is Greenwich, Conn.-based Nyppex. More recently, other online services have cropped up, such as SecondMarket, based in New York.
But Brogger dismissed the comparison, saying that the other services utilize brokers, requiring investors to pay a commission fee in the tens of thousands of dollars per transaction – far more than the $2,500 transaction fee charged by US Bank to handles SharesPost’s escrow services.
Among the shares that have been listed are social networking giant Facebook Inc., “micro-blogging” site Twitter Inc. and solar panel company SolarCity Corp. The site also collects third-party research on many of the companies being traded – an important point, Brogger said, because information can be hard to come by for privately held companies.
Larry Butler, chief executive of advertising firm TrashTalk FCM in Brentwood, has been using the site for a couple of months now and has built an investment portfolio of more than a half-million dollars in private company stock.
He said he appreciates the opportunity to invest in hot companies that have already gained the backing of top venture capital firms.
“It is creating an opportunity to make shares in private companies more accessible to the public,” he said. “I would have never had an opportunity to buy shares in Facebook, for instance, if it wasn’t for SharesPost.”
SharesPost
HEADQUARTERS: Santa Monica
FOUNDED: 2009
CORE BUSINESS: Online platform connecting buyers and sellers of private
company stock
EMPLOYEES: 12
GOAL: To create a thriving marketplace for secondary private equity transactions that increase liquidity for the investment community
THE NUMBERS: Site has more than 6,000 registered members
