The Rise of the Secondary Markets

Since the post-Enron regulation that doubled the time needed for startups to go public, VCs have been thirsty for liquidity. The recent pullback in funding from LPs has left the VC community even more parched.


With fewer exit possibilities and less money to keep late-stage companies afloat, the venture capital ecosystem is in for a serious overhaul. But VCs are no strangers to rapid adaptation. The thirst for liquidity has driven an increase in second-market stock trading, most notoriously in the case of Facebook, whose stockholders have been busy trading shares on the not-so down-low.


Some VCs see opportunity in the current cash-flow crunch. Tim Draper, whose various funds invest in over 500 startups, unveiled one of his latest investments, Xchange, at Venture Summit East in late May. Xchange is a trading platform for private-company stock where VCs, equity holders, and qualified buyers can trade restricted assets based on a tightly-controlled system for sharing private company information. I caught up with Draper and CEO Thomas Foley at Venture Summit East