“They have no venture chops, they are brokers with a good sales team. They were able to get money, but they cannot compete with the Institutional Venture Partners of the world.”

Please contact Bo Brustkern directly for more information relating to secondary market activity in general, or private equity investment research specifically.

“These hot private companies are revealing their numbers, and I for one am surprised how they’re not making money. Everything in my space I’ve looked at doesn’t make money.”

Please contact Bo Brustkern directly for more information relating to secondary market activity in general, or private equity investment research specifically.

“Silicon Valley is just vibrating with excitement right now. It is reminiscent of 1999, but somewhat different. Valuation bubbles are constrained to just a few segments so far.”

Please contact Bo Brustkern directly for more information relating to secondary market activity in general, or private equity investment research specifically.

“They may be able to dominate the Russian market but what do you do for an encore? How do you get out of the Russian-speaking world and into other markets? Tech analysts are also not as familiar with Russian accounting. I’m not sure people really understand this company completely.”

Please contact Bo Brustkern directly for more information relating to secondary market activity in general, or private equity investment research specifically.

“There is a disconnect between what is going on in the secondary market and what’s going on with the company,” said Bo Brustkern, partner at Arcstone Equity Research, which analyses private companies. “The transactions occurring on the secondary market are not necessarily a good representation of the value of that company’s stock.”

While many articles appearing in the WSJ, NYT and various blogs and business rags focus on SEC inquiries apparently centering on the number of shareholders private companies have (with 500 being a trigger for forcing a public offering), the FT hones in on matters of greater import: issues of transparency and information scarcity among buyers and sellers of private company stock. Says Gelles:

Existing SEC rules mandate that buyers and sellers of equities have equal access to information about a traded security. But because the buyers of private company stock rarely have access to a company’s books, there is inherent information asymmetry between investors eager to get a piece of a pre-IPO company, and the companies themselves.

Arcstone Equity Research was founded to address this very issue. It is a highly nuanced area of finance, and AER has developed an elegant way to improve information quality and symmetry in the secondary direct marketplace. Essentially, AER's private equity investment research allows companies that are involved in (or subject to) secondary market transactions to provide information to select market participants, thereby removing information asymmetry and all the potential liabilities that go with it.

Please contact Bo Brustkern directly for more information relating to secondary market activity in general, or private equity investment research specifically.

Currently, traditional venture firms typically hold on to companies for five to nine years, according to Dow Jones VentureSource. And angel investors usually can't get out of a company until after their VC counterparts have, notes Brustkern. In sharp contrast, super angels routinely exit companies in four years or less.

Also, [angels may be required to make] additional investments... to avoid having their ownership significantly diluted if a start-up goes on to take money from big VCs, notes Brustkern

To access the full article, click here.

Some analysts caution that these investments are being made without sound financial discipline. Bo Brustkern of Arcstone Equity Research, which analyses private companies, says investors’ desperation to own the stock can lead to imprudent actions.

“Purchasers may be willing to pay a premium for access to private stock they would not otherwise have, thus overpaying.”

The article highlights one of the fundamental issues buyers often face when purchasing shares of private company stock over marketplaces like SecondMarket and SharesPost. That is, the complete absence of company information that otherwise could be utilized to fundamentally value the securities purchased.

"...as a private company, Facebook has not disclosed details of its financial performance and the $76-a-share the investor paid has raised eyebrows from Wall Street to Silicon Valley. The trade gave Facebook an implied valuation of $33.7bn, making it worth more than most companies on Nasdaq."

Arcstone Equity Research was founded to address this very issue. It is a highly nuanced area of finance, and AER has developed an elegant solution to the various problems that currently exist in what is known as the secondary direct marketplace. Nuanced or not, the essence of what we have developed is very simple: allow companies that are involved in (or subject to) secondary market transactions a compelling reason to provide information to select market participants, thereby removing information asymmetry and all the evils that go with it.

Please contact Bo Brustkern directly for more information relating to secondary markets activity in general, or private equity research specifically.

"the dead wood is working itself out of the industry finally," Brustkern suggests. "You have all these [VC] firms that are victims of the delayed or never-happening exit. They invested in their companies years ago, and aren't getting fees anymore and haven't raised a new fund, but have a fiduciary responsibility to keep their doors open until the fund winds down. They're the walking dead."

The article, "Mid-life Crisis? Venture Capital Acts Its Age", discusses the issues plaguing the venture capital industry, including the lack of liquidity for VC-backed private companies seeking exits.

See also coverage from PEHub.

If you are unable to attend the conference, but would like insights into any of these topics, feel free to contact Bo at 720-259-0472 or bo |at| arcstonepartners |dot| com.