The technology world’s talent wars are a well-known and frequently discussed topic in the startup community. Technology companies regularly make strategic acqui-hires of smaller companies with the sole purpose of gaining the employees of the acquired company. Startups regularly compete against tech giants like Google, Apple and Microsoft for engineering and technical talent, and every company tries to differentiate itself from the thousands of other startups all eyeing the same resumes.
From catered lunches and free massages to in-house yoga and dog-friendly offices, startups showcase their love for their employees in countless ways, all with the ultimate goal of keeping morale and productivity high at the organization.
One of the more under-the-radar but effective ways to retain valued employees is slowly becoming the norm in the startup world: Companies providing current employees with interim liquidity before a company is ready to go public or get acquired, in the form of a company-initiated and company-controlled Private Liquidity Program (PLP).
2012 marked a significant shift in the minds of startup founders and their management teams when thinking strategically about PLPs. At SecondMarket, we worked with more private companies in 2012 than in any other year of our market’s existence. The majority of our private company customers felt very strongly about rewarding their employees for their hard work and dedication, and worked with SecondMarket to tailor PLPs to fit the companies’ needs. By working with SecondMarket to give employees the opportunity to sell some of their holdings, a number of startups reduced the pressure to go public in a dismal IPO market and, at the same time, forged relationships with new and important long-term investors.
With that, we are excited to share the 2012 Year in Review SecondMarket Report. We want to kick it off by presenting the 2012 year “Company Snapshot”, which describes what the “typical” growth-stage private SecondMarket Company looked like in 2012.
Notably, 2012 marks the first year that Consumer Web and Social Media did not comprise the majority of PLPs since this market launched in 2009. A broader variety of companies are increasingly using SecondMarket, including Software companies (33.9%), Consumer Electronics companies (26.4%), and Consumer Web and Social Media companies (17.7%). Gaming, eCommerce and Mobile/Wireless companies also represented smaller portions of the overall transaction pie.
The next chart features the types of buyers who joined the shareholder bases of the companies we worked with in 2012, based on transaction volume. The predominant company-selected buyers were institutional investors, 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 PLPs. The remaining 10% were mainly the companies/issuers themselves (9.8%), signaling a trend in company buy-back programs to create strong incentives for employee retention and morale.
2012 saw a tremendous shift in the makeup of sellers who were allowed to participate in company-controlled PLPs. In years past, the majority of sellers consisted of former employees, but in 2012, companies used SecondMarket to allow current employees to obtain liquidity. Last year, 66% of sellers were current employees at private companies.
Buyside Demand by Industry
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 PLPs). 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 for 2012. Given the excitement around social media platforms, especially in the first half of last year, companies in the Consumer Web and Social Media sector sparked the most investor interest overall, with more than $2 billion of interest from potential investors. Software and Gaming saw $190 million of interest followed by Mobile, with $99 million in buyside demand.
Q4 2012 Rising Stars
In addition to providing a recap of the entire year, we also monitor data for each quarter. For example, every quarter we calculate the VC-backed startups with the largest quarter-over-quarter percent increase in total watchers on our platform, and provide a ranking of the most exciting startups being “watched” by SecondMarket users. The SecondMarket Rising Stars from the last quarter of 2012 consisted of some of the most interesting, dynamic companies who are shaking up their respective industries.
Shapeways, a 3D printing marketplace and community headquartered in New York, scored the top spot in Q4, with a 414% increase in followers. San Jose-based IT and hardware company Nimble Storage made the second spot, with a 246% increase in watchers. Braintree, a payments platform headquartered in Chicago, came in third (+218%) and Sunnyvale-based Good Technology maintained the same spot from Q3, with an additional 197% increase in watchers. Rounding out the list at the fifth spot was Kiip, a SF-based mobile application rewards network.
Q4 2012 Newbies
The SecondMarket Newbies list was especially interesting in Q4 2012. These startups began the quarter with less than ten watchers and gained traction over three months.
Notably, two startups on the list, Getable and Transcriptic, were a part of one of SecondMarket’s most exciting partnerships that we recently announced: SecondMarket + AngelList.
Proformative, a social network for corporate finance professionals, made the second spot on the list. Lifestyle media company Sugar Inc came in fourth place, and Houzz, a website and online community about architecture and interior design, took the last spot in the Q4 list.
Q4 2012 Most-Watched Community Banks
In addition to serving more startups and their shareholders in 2012, we also launched a community bank pilot program earlier last year that has since seen tremendous momentum. One of our community bank 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 2012, Team Capital Bank (PA) came in first place, followed by Lubbock National Bank (TX), The Bank of Princeton (NJ) and North Jersey Community Bank (NJ), which recently changed its name to ConnectOne Bank. Square 1 Bank (NC) and TX-based Legend Bank followed suit, while FirstCapital Bank (TX), TrustAtlantic Bank (NC), Silvergate Bank (CA) and Pascack Community Bank (NJ) rounded out the list.
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