Did the Facebook IPO Stab Second Market in the Chest?
by David Drake, CEO and Founder, The Soho Loft & LDJ Capital
New York, July 20, 2012
Did the Facebook debacle, available to a select few, priced as high as $60 per share, break the business model for Second Market? The lack of transparency and the hype seems to show how consumers can take the hit for roll-outs under current regulations. This seems to make a new market look even more vulnerable to the same inappropriate methods that take advantage of interested consumers. Yet another strong argument for the SEC and FINRA to support the JOBS Act more quickly, and allow a better, transparent platform where consumers can equitably access fair company information through a lucid process.
Second Market and Sharespost trade private stock like Facebook without revenue transparency and without open profit and loss statements. Now Facebook has joined Zynga with a dismal IPO performance and billions in lost value for the last-in-line buyers. Is there an alternative or shall we continue to ‘fix’ the broken system? Maybe the VCs and the public markets should learn that their systems are defunct. They are living in an ideal bubble of how things used to be but no longer are.
I am an advocate of transparency through crowd questions and inquiries as suggested under the crowd funding bill in the JOBS Act (Jumpstart Our Business Startups Act) signed into law by President Obama on April 5, 2012. This new setup offers an easily understood, information-rich platform where the executives of small start ups (under $1M to be raised under the current JOBS Act) must be proactively clear on their use of funds and expectations. The platform suggested could potentially have crowds of tens of thousands of potential investors incessantly inquiring and challenging companies. The investor relation communications will be the challenge when managing such volume, and yet again, it will train new entrepreneurs on how to manage these expectations.
How often have angels and investors (through friends, family, or private placements) made investments – never to hear again from the entrepreneur until they have a problem and need help? I argue that the investor communication is critical for the transparency and trust between entrepreneurs and investors. This needs to be mandatory for all entrepreneurs. Personally, as an investor, we have recommended start-ups to at least publish a monthly newsletter. I would say this recommendation was heeded only once out of three hundred times, in the last five years.
Entrepreneurs, you need to build a relationship with customers, investors, clients and media. Crowd funding for equity has that promise to train our next generation of leaders through online investor and customer communication.* Yes, Second Market is bleeding and certainly licking its wounds. They will be back and maybe with the transparency crowd funding under the JOBS Act promises. What do you say?
* Note, crowd funding for equity is not yet legal in the US. It may become legal only after SEC rules on the implementation process (by early 2013), and then FINRA will have to rule their implementation process (by Q2-Q3, 2013).
ABOUT THE SOHO LOFT
The Soho Loft Capital Creation Events “TSL”, subsidiary of LDJ Capital, is a world leader in conference speaking and paneling on crowd funding and the JOBS Act (Jump Start Opportunities for Business StartUps Act) signed into law by President Obama on April 5, 2012. TSL provides education and leadership to startups, and Small and Medium-sized Enterprises in the areas of capital formation, crowd funding, angel networking, non-conventional funding, eb5 green card programs, micro-finance, venture capital, private equity and hedge funds. In 2012 TSL is hosting 60 finance-focused events and expects to double the events to 120 in 2013. David Drake Founder and CEO of TSL co-founded the Crowdfund Intermediary Regulatory Advocates (CFIRA) and is a representative of the U.S. Commerce delegation to Brussels and Rome with European Ministers and legislators. Overall mission is to bring global awareness and develop infrastructure to facilitate countries’ capital formation, innovation and job creation. For more information, visit www.thesoholoft.com.