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I doubt you will ever be able to have a stock market for private companies. There are reasons why they make companies be public in order to have their securiti
by ssharp 18y ago
I doubt you will ever be able to have a stock market for private companies. There are reasons why they make companies be public in order to have their securities on the open market. Doing this would undue all of that, would be rampant with fraud, and would implode quickly.
A one-on-one buying/selling system could work but you could never emulate the way the stock market works, it would be far to easy to manipulate stocks and the company has way too many incentives to fool investors with no regulating body. If a regulating body was created, it would cost the startups too much to comply.
- bokonist 18y agoThe stock market would have to be privately run, and the company running it would set rules for all listed companies ( such as stock purchased by investors is preferred, employee shares cannot be sold until certain milestones are hit, etc). There would be a cost of compliance with these rules, but I bet it would be more efficient for the startups than raising money through the existing Angel/VC route. Some of the compliance could be automatic, such as reporting software that integrated with Salesforce or Google Analytics.
- tptacek 18y agoYou cannot simply set up a "private stock market" to bypass SEC rules. To purchase non-registered securities, you need to make more than $200k/year or have more than $1MM in assets, and attest to "accredited investor" status.
- bokonist 18y agoMaybe the market could be run out of a foreign country? Or perhaps the investments would be funneled through a holding company that was SEC registered? In other words, the holding company would own the stock in the startup, and the small time investor would purchase contracts from the holding company that would pay back cash in the event of a liquidity event for the desired startup.
- newt0311 18y agoActually, there are special SEC regulations for stock markets for private companies. There are some extra restrictions on them* but they are there. Look up Goldman Sachs trading platform for unregistered securities. * To my (sparse) knowledge, the major restrictions are that only 400 owners max for any 1 company and all investors have to be institutional investors with minimum assets of over $100 million. Still, the traded companies have far lower regulatory requirements.
- tptacek 18y agoThere are markets run inside of some large private companies (Bloomberg being a good example), but these are available only to employees.