Barry Silbert: A New Vision for Capital Markets [Entire Talk] | Summary and Q&A

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August 11, 2011
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Stanford eCorner
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Barry Silbert: A New Vision for Capital Markets [Entire Talk]

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Summary

This video features Barry Silbert, the founder and CEO of SecondMarket, discussing the company's journey and vision for the future. SecondMarket is a marketplace for buying and selling alternative financial assets, such as private company stock. Silbert explains how the company started with just five employees and an Excel spreadsheet, and has since grown to become a major player in the market. He also discusses the challenges of the current public market system and the need for disruption. Silbert highlights the benefits of SecondMarket's approach, including more transparency and control for companies, and better access to liquidity for employees. He concludes with some lessons learned as a first-time entrepreneur.

Questions & Answers

Q: What is SecondMarket and what types of assets does it deal with?

SecondMarket is a marketplace for buying and selling alternative financial assets. It primarily deals with private company stock, but also includes other illiquid assets such as restricted stock in public companies, bankruptcy claims, and even toxic assets like CDOs and mortgage-backed securities.

Q: How did SecondMarket start and what was its initial market place?

SecondMarket started in 2004 with just five employees and an Excel spreadsheet. Its initial market place was restricted stock in public companies. They focused on this one asset class and built a profitable business before expanding into other asset classes.

Q: How did SecondMarket get involved in the private company market?

SecondMarket got involved in the private company market after receiving a phone call from a former employee of Facebook looking to sell their stock. They realized there was a need for a marketplace for private company stock and decided to create one. They saw institutions willing to buy Facebook stock without much information, and realized there was a demand for transparency and centralization in this market.

Q: What is the current state of the IPO market?

The IPO market has been declining over the past decade, with fewer IPOs and larger companies dominating the market. The average hold period for a share of stock has also decreased significantly. Silbert argues that the IPO market is broken and needs disruption.

Q: How does high-frequency trading impact the market?

High-frequency trading represents over 60% of trade in the public markets and has increased market volatility. Silbert believes that high-frequency trading is "screwing the market" and sees an opportunity to create a new exchange and market structure that is better for companies and long-term investors.

Q: How does SecondMarket's market model differ from traditional stock exchanges?

SecondMarket's market model is designed to conform to the company rather than forcing the company to conform to the market. Companies have control over when the market is open, who the buyers and sellers are, and how much information they disclose to potential investors. It is a more flexible and customizable approach.

Q: How does SecondMarket ensure information disclosure and protect investors?

SecondMarket requires certain information to be disclosed by sellers, such as audited financials and balance sheets. Companies are encouraged to provide additional information to investors. SecondMarket has also created an ecosystem of analyst firms that provide research on the private company market, which is funded by the exchange rather than the companies themselves.

Q: Can companies manipulate when they open up a market on SecondMarket?

Companies have control over when they open up a market, but there are certain safeguards in place to protect investors. The company's intentions to open a market are disclosed to investors, and if the company does not follow through, they may face potential consequences and reputational damage.

Q: What benefits does SecondMarket offer to companies and employees?

SecondMarket offers companies more control over their stock and the ability to provide liquidity to employees in a more flexible and efficient manner. Employees can realize the value they have created earlier in the company's lifespan. It also allows companies to remain private if they choose and avoid the challenges and costs associated with going public.

Q: What are some lessons learned as a first-time entrepreneur?

Silbert emphasizes the importance of not fearing established companies and the need to disrupt traditional systems. He recommends launching with a minimum viable product and not waiting for everything to be perfect. Silbert also encourages entrepreneurs to be fearless and pursue opportunities in areas they are passionate about. He believes that the tools and ability to change the world are available to this generation.

Takeaways

Barry Silbert's talk highlights the need for disruption in the current public market system and the benefits of SecondMarket's approach. By creating a marketplace for alternative financial assets, such as private company stock, SecondMarket provides more transparency, control, and liquidity for companies and employees. The IPO market has been declining and the rise of high-frequency trading has further complicated the public markets. SecondMarket's market model is designed to be flexible and customizable, allowing companies to set their own rules and timing for trading. The company also encourages information disclosure and provides analyst coverage funded by the exchange. Silbert shares some lessons learned as a first-time entrepreneur, emphasizing the importance of not fearing established companies, launching with a minimum viable product, and being fearless in pursuing opportunities.

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