Markets for shares in private companies have seen a roller-coaster of a ride the past few years.

Companies like Sharespost and Secondshares, were thriving firms, enabling founders and early investors in startups to sell some or all of their stakes — without the need for an IPO or M&A transaction. These markets were a godsend for many entrepreneurs and early-stage investors.

But that was all before Facebook IPO’d. The massive social network provided so much of the liquidity on these exchanges that after Facebook went public, these markets saw their liquidity dry up.

Matching supply and demand in private shares

Low liquidity in private shares markets amplifies the effects of small transactions. Just like in thinly-traded stocks on Wall Street, one buyer or seller can cause share prices to swing wildly given the large differences in Bid and Ask prices.

Same thing goes for private shares. If a founder is looking to unload a portion of his stake, just the signal of a seller in the private stock could send the stock price reeling.

Major stock exchange, Nasdaq believes it has a solution — to unify US private shares markets. Speaking at a conference yesterday, an executive revealed that the stock exchange would impose periodic trading windows in a bid to reduce volatility and increase liquidity in shares of startups.

[bra_blockquote align=”right”]Robert McCooey, NASDAQ’s senior vice president of capital markets and new listings, told Silicon Valley Watcher: “There are multiple places people are trading private shares and we have an opportunity to create a single market.”[/bra_blockquote]

Though volumes are down on these markets, the move by Nasdaq into the space should ultimately encourage more active trading in shares of startup companies. That’s good for angel investors in Israeli startups and for the companies they invest in.


photo courtesy of Daquella manera