Investing in venture-backed private companies used to be by invitation only. You had to be a founder, employee, a "friends or family" investor, or a venture capital or private equity firm to buy stock in high growth private companies.
But this has changed over the last few years as private company stock exchanges have emerged. These exchanges allow trading in private company stocks like Facebook, Twitter and LinkedIn.
One of the best known is Sharespost, which according to their website "connects buyers, sellers and brokers of shares in leading, venture-backed private companies and gives them the information, tools and assistance they need to close their transactions."
The major advantage of these exchanges is they provide a way for private companies and their shareholders (especially employees) to sell stock without going through the expensive and complex process of going public.
Sharespost is also a good source of information on private company valuation. Below are some well known private companies and their recent Sharespost valuation.
- Facebook has a value of about $25.5 billion;
- Zynga is valued at $4.9 billion;
- Twitter at $2.2 billion;
- LinkedIn at about $2 billion.
Like any exchange, stock prices fluctuate. The valuation data above is from an article in Silicon Valley Watcher on Second Life's recent share price declines.
The already costly and complex process of going public is likely going to get worse. So are the reporting and regulatory burdens of being a public company. The Economist Magazine is even suggesting that the public company's dominant corporate role may be over.
These trends indicate fewer companies chosing to go public and a strong future for private equity exchanges.