December 28, 2010, 3:55 PM — Tuesday's Wall Street Journal has a fascinating article about the growing market for ownership of private technology companies.
The WSJ points to intense investor interest in private Internet companies such as Facebook (along with Twitter and LinkedIn) as being indicative of a trend:
Trading in shares of Facebook has been particularly strong in the past month. The surge began after a big transaction in November, when venture-capital firm Accel Partners, an early backer of the social-networking firm, sold less than 15% of its stake for $517 million, say people familiar with the deal. The deal, some details of which were reported on tech blogs, valued Facebook at around $35 billion, those people say.
Soon after the sale, Facebook's trading volume and price surged on SharesPost and SecondMarket, two exchanges that allow trading of closely held firms' shares. In the past month, the average valuation of Facebook based on transactions on SharesPost has risen almost 25%, to more than $56 billion, the exchange said. SecondMarket said Facebook's valuation had risen about 12% over the same month. Such differences are possible because these aren't public markets.
Just to give you some perspective, at $56 billion Facebook would be worth more than the current market capitalizations of eBay ($37 billion) or Dell ($26 billion), but far less than Apple ($299 billion), Google ($149 billion) or even Amazon.com ($81 billion).
The WSJ article has some good color about the world of private shares -- employees who want to sell them, investors who want to buy them, exchanges that facilitate deals -- and how the estimated value of a private tech company is established.
While it might be tempting to dismiss the Facebook information as somewhat anecdotal -- after all, how many Facebooks are there? -- the WSJ points to research that shows the estimated value of transactions in private-company shares more than doubling this year to $4.9 billion from $2.4 billion in 2009. So it's not just the private tech superstars drawing investor interest.
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.