VC Rewind: Private share buyers get a Facebook lift

When Greg Brogger launched SharesPost in July 2009, the idea was to create a marketplace for buyers and sellers of shares in fast-growing private companies from a variety of industries.

But since inception, one company has dominated the market: Facebook.

The gargantuan social networking site was the first company to draw significant attention from buyers on the site, who were initially willing to pay about $12 a share. Today, they’re shelling out at least 5x that amount, giving the Palo Alto, Calif.-based company an implied valuation close to $30 billion.

Brogger says that the spike in value has less to do with a recovery in the broader economy and more to do with the company itself.

“By far the biggest part of that is just the success of Facebook. They’ve crossed significant milestones,” says the SharesPost CEO, who estimates that his site is currently generating $400,000 to $500,000 worth of transactions a week, with Facebook still contributing a significant volume.

SharesPost users aren’t the only ones raking in gains from Facebook wagers.

Dan Burstein

, managing partner at secondary buyer Millennium Technology Ventures, says that his firm did well buying up shares in Facebook between mid-2008 and mid-2009, during the depths of the financial crisis.

“Transactions are taking place today at 10x to 12x the price we paid,” says Burstein, who adds that while he sees upside potential for Facebook, given its enormous user base, the company appears to be “properly valued by people who are doing transactions today.”

In fact, Facebook valuations have been rising pretty consistently for more than a year, says Mark Murphy, spokesman for SecondMarket, which operates a site for buying and selling illiquid assets, and which launched a private share market in April.

Murphy says Facebook continues to be the dominant source for transactions in its private share market, but “interest in other companies has definitely spread,” he says, with private company share sales growing from just over $100 million in the last three quarters of 2009 to just under $200 million in the first half of this year.

As their private share markets mature—and a modest IPO market revival reminds investors that lucrative public market exits are still possible—SharesPost and SecondMarket say they are seeing a rise in transactions for shares of companies other than Facebook.

SharesPost currently lists shares for sale in more than 100 companies on its eBay-like bulletin board exchange, with Zynga Game Network and Twitter generating some of the most recent activity. Twitter shares recently sold at an implied valuation of about $2.7 billion, while Zynga fetched an implied value of $4.65 billion, according to SharesPost.

Those valuations are significantly higher where the site pegged the companies in March, when it launched its SharesPost Venture-Backed Index. At the time, Twitter’s estimated valuation was $1.45 billion, Zynga was at $2.6 billon, and Facebook was at $11.5 billion.

The sources used to come up with the index number include the price of the last private share transaction, the midpoint between highest and lowest bid and ask prices, average of private research firm valuations, and valuations from a venture transaction within the past six months. Current index values for Twitter, Zynga and Facebook are $2.1 billion, $4.1 billion, and $24.6 billion, respectively.

Current transactions also indicate that valuations were either previously understated or have risen substantially from a year ago, when SharesPost began publishing third-party analyst reports for companies on its bulletin board. One contributor, NextUp Research, estimated in July 2009 that Facebook was worth between $3.15 and $4.34 billion. Another, VC Experts, estimated its value around $8.4 billion.

Until now, early buyers of Facebook shares through SharesPost have had to content themselves with paper gains. The site requires them hold their stock for at least a year before reselling. Now that the site has been active for that long, however, some of the earliest buyers will have the ability to lock in profits.