The secondary market for shares of venture-backed private companies will remain largely under served for years to come. More information transparency is needed for it to live up to its potential.

Given that the IPO market remains fickle and the supply of ”hot” pre-IPO stocks unpredictable, secondary market exchanges have no choice but to diversify their trading in order to grow. They will only be able to do so if they start providing information beyond simple share tallies and high-level reports. Without this, sophisticated investors will struggle to comprehensively and rationally value the holdings put up for sale and become more active purchasers.

Private exchanges have emerged over the past few years to play a very visible and sometimes controversial role in creating early shareholder liquidity. Transaction volumes on SecondMarket’s platform grew from $100 million in 2009 to $558 million in 2011, while its competitor Sharespost registered $625 million in secondary trades last year.

 

Full text: www.pehub.com