It’s hard to believe there are only two months left in 2012…time flies when you’re busy. This quarter we updated our home page, established ongoing liquidity programs for a number of community banks (including one of the fastest-growing banks in the country), and continued to develop Private Liquidity Programs (PLPs) for some of the best private technology companies in the country.

Beyond the world of SecondMarket, Q3 also marked a significant rise in criticisms of the public markets. As we are not strangers to understanding the systemic issues in the capital markets, this wasn’t anything particularly new. But this time, something was different.

From an op-ed in the New York Times: “Imagine if the stock market were hijacked by computers that executed trades in a fraction of the time that it takes to blink. Since no mere mortal could understand the “thinking” behind such nanosecond trading, ordinary investors — even longtime institutional traders — would have little clue as to why any company’s share price was moving up or down in any moment. The values of well-established corporations would sometimes swing wildly from one second to the next and we slow-reacting, human investors wouldn’t know why.”

The Times then stated: “You don’t really have to imagine this. This is how our stock markets function today.”

So where does that leave us? As the public markets are dominated by “traders” who live in server parks and speak only in binary pulses, SecondMarket is all about taking it slow. Our private company clients enjoy a stock market they are able to control and, most importantly, a market focused on providing private companies with the ability to best serve all of their stakeholders.

Either way, we are pleased to share the new SecondMarket Report for Q3 2012. First, take a look at the Q3 edition of the “Company Snapshot” that we debuted in Q2, which paints a detailed portrait of the “typical” emerging growth private company that worked with SecondMarket to create a PLP in Q3.

Company Snapshot - what a typical private company looked like on SecondMarket in Q3 2012. Includes average market cap, funding raised, number of employees

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The next chart is a breakdown of the industries our emerging growth private company clients belonged to in Q3 2012, based on total transaction size. Consumer Electronics made up three quarters of the total transaction size in Q3 with 75.8%, and E-Commerce came in second with 19.4%. Financial Services took the third spot, with 3.6% of the total transaction size. Notably, Q3 marks the first quarter that Consumer Web/Social Media did not take the first or second spots. This trend has been present throughout the industry, as Private Liquidity Programs have continued to proliferate beyond their origins within Consumber Web/Social Media.

Industry Breakdown by Total Transaction Size. 75.8% Consumer Electronics, 19.4% eCommerce, 3.6% Financial Services, 1.2% Consumer Web and Social Media

The following chart details the types of buyers who joined the shareholder bases of the companies we worked with in Q3, based on transaction volume. Nearly 80% of the company-selected buyers were the companies (issuers) themselves, signaling the increasing trend in issuer share buy-back programs. The remaining 20% were VC firms who were either selected by the issuer as new, strategic investors, or they were existing shareholders who gained a larger stake in the company as a result of the liquidity program.

As for sellers, companies continued the recent trend of allowing current employees (75.5%) to obtain liquidity as a way to incentivize and motivate longstanding employees. Former employees, (17.6%), investors (6.5%), and a small number (0.3%) of founders were also approved by the companies to participate.

Buyer Type by total transaction size: 79.4% Issuers, 20.6% VC Firms

Seller type: 75.5% employees, 17.6% former employees, 6.5% investors, 0.3% founders

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We allow institutional and accredited individual investors on SecondMarket to submit Indications of Interest (“IOIs”) in private companies (regardless of whether the companies are currently running liquidity programs). Companies can use this information to help guide their decision-making and timing for capital raising and/or secondary liquidity.

The chart below breaks down the buyside IOIs by industry in the third quarter of 2012. For the first time since the SecondMarket Report’s inception nearly three years ago, Consumer Web and Social Media did not land the top spot for the quarter. Rather, Biotech and Pharmaceuticals came in at first place, with over $77 million of interest from potential investors. Consumer Web and Social Media made the second spot with nearly $45 million in buyside demand. Software saw $43 million of interest followed by Financial Services with $23 million. Food and Beverage, Travel, and Recruiting and Human Resources also made the list for the first time.

Our heat map, introduced last quarter, also indicates investors’ demand based on their location. In Q2, California was the top state with the most investors submitting buyside IOIs, followed by New York, but the results flip-flopped in Q3, bringing New York to number one and California to number two. Texas, Florida and Washington rounded out the top five.

Buyside Demand by Industry

This chart offers a breakdown of indications of interest to buy private company shares, by state.

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Every quarter, we calculate the VC-backed startups with the largest quarter-over-quarter percent increase in total watchers on our platform, and provide you with a ranking of the most exciting startups that are “watched” by SecondMarket users. The SecondMarket Rising Stars from Q3 consisted of some of the most interesting, dynamic companies who are shaking up their respective industries. Meraki, the first cloud-managed network infrastructure company to provide hardware and software for building large scale wired and wireless networks, scored the top spot in Q3, with a 309% increase in watchers. New York-based tech darling and online programming tutorial Codecademy made the second spot, with a 242% increase in watchers. Kiip, a mobile application rewards network headquartered in San Francisco that enables brands and companies to provide consumers with tangible rewards for virtual achievements, came in third place (+104%), and Sunnyvale-based Good Technology came in fourth (+45%). Good Technology provides push e-mail and mobile device management and security products for mobile phones. Rounding out the list at the fifth spot was Sonos (+44%), a Santa Barbara-based company most well-known for the Sonos Multi-Room Music System.

Kiip Good Technology Sonos

The Q3 list of SecondMarket Newbies was just as interesting and diverse as the Rising Stars. These startups begin the quarter with less than ten watchers and gain traction over three months. Coursera, an educational technology company based in Mountain View, was the number one Newbie in Q3, with a 240% increase from the beginning of the quarter and ending up with 17 watchers. Addepar, a finance startup that powers global wealth management and based in Mountain View, took the second spot on the list. Finally, three startups tied for third place on the Newbies list: New York-based digital advertising provider, Rocket Fuel, New York-based style hub, Fancy, and San Mateo-headquartered Coupa Software, a provider of cloud spend management solutions.

Coursera Addepar RocketFuel Fancy Coupa

As we mentioned earlier, Q3 was just as busy for our community bank pilot program as it was for our venture-backed private company market. One of our clients, Team Capital Bank of Pennsylvania, announced that they engaged SecondMarket to help them alleviate the administrative and legal burdens that accompany secondary trading of shares. In the meantime, a number of community banks grabbed the attention of our platform participants. In our list of Top Ten Most-Watched Community Banks for the third quarter, Lubbock National Bank in Texas was the most-watched community bank on the list for the third time this year. Team Capital Bank (PA) stayed at second place, followed by North Jersey Community Bank (NJ), The Bank of Princeton (NJ), and Square 1 Bank (NC). Rounding out the rest of the top 10 list were Legend Bank (TX), TrustAtlantic Bank (NC), Silvergate Bank (CA), Pascack Community Bank (NJ), and in its first appearance on the list, First Capital Bank of Texas.

Lubbock National Bank Team Capital Bank North Jersey Community Bank The Bank of Princeton Square 1 Bank Legend Bank Trust Atlantic Bank Silvergate Bank Pascack Community Bank First Capital Bank of Texas

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Important Disclosures

Please note that the information in this report does not constitute an offer to sell to, nor a solicitation of an offer to buy from, nor shall any securities be offered or sold to, any person in any jurisdiction in which such an offer, solicitation or sale would be unlawful. There is not enough information contained in this message in which to make an investment decision and any information contained herein should not be used as a basis for this purpose.

To the best of our knowledge, this report and relevant pages are: current as of the date of distribution and subject to change without notice.

SecondMarket does not: produce in-house research; make recommendations to purchase or sell specific securities; provide investment advisory services; or conduct a general retail business.

Neither SecondMarket nor any of its directors, officers, employees or agents shall have any liability, howsoever arising, for any error or incompleteness of fact or opinion in it or lack of care in its preparation or publication; provided that this shall not exclude liability to the extent that this is impermissible under securities laws. All statements and opinions are liable to change without notice.

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