Thoughts about Crowdfunding for Startups (3/4)

As far as I know, only two companies were smart in implementing the private stock market idea (but not a crowdfunding platform): SharesPost and SecondMarket via its “Private Company Stock” business unit, (which was an acquisition in Oct. 2009 of a startup named InsideVenture).

They have provided brilliant solutions to trading stocks of private companies by partnering with financial and market research institutions. But they only serve VC backed companies at a very late stage just prior to the IPO and they only allow accredited investors (individuals or institutions) to trade stocks.

So basically they serve as a secondary market or somehow a clearing house in which early stage investors or employees who have shares can liquidate their shares by selling them to others instead of keep waiting for an IPO event, of course if they are allowed to, because some startups do not allow employees to do that by imposing the “right of first refusal” term.

SharesPost launched a bulletin board-style trading system where buyers and sellers post their bids and asks on the site. The system is open to companies with market capitalization of $100 million or more. SharesPost is providing detailed information on the companies trading on the platform through two analyst companies, Next Up Research and VC Experts.

One other company that tried to do it on a wider scale and really target the crowd is Sprowtt, but unfortunately, their website is currently (Feb. 2010) “Overhauled” as mentioned there. More information about Sprowtt can be found in their TechCrunch50 demo video.

Venture capital and private equity firms view those private markets as an opportunity for an early exit, but still, many venture capital firms generally prefer to stick with more solid exit strategies such as mergers, acquisitions and IPOs.

But the question remains, how to do it for seed stage startups? How to enable entrepreneurs to crowdfund, and how to enable the crowd, not only accredited investors, to invest and trade their stocks in private technology startup companies?

My next post is trying to answer those questions!

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