SecondMarket says trade of private company stock reached $124M in Q1

SecondMarket, a firm that handles auctions of illiquid assets, including stock in private companies, says it’s seen $124 million worth of trades (in over 78 transactions) in the first quarter of 2010. Facebook accounted for over 40 percent of all those transactions, up from 21 percent in Q4 of 2009.

Facebook stock has reportedly been trading at $50 per share on SecondMarket — that reflects a $22 billion valuation for the company, although it’s declined to discuss valuations. Total dollar volume on the exchange increased by about $35 million, with a three-fold increase in total transactions over Q4 2009.

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Nearly 10 percent of Q1 transactions involved LinkedIn stock, while Zynga’s accounted for a little over 7 percent. Both companies’ shares saw dramatic increases in transaction volume over Q4 2009, when they accounted for just under 2 percent each.

About eight percent of the transactions were for solar energy company Solyndra, and car maker Tesla accounted for another eight percent. Twitter shares, which weren’t traded last quarter, accounted for a little under 7 percent of transactions in Q4. 7.4 percent of shares were in an unnamed stealth “late stage” company developing smart grid technology.

In total 13 private companies saw their shares traded on SecondMarket in Q1.

As trading volume soared, Facebook restricted employee stock sales this month, citing uncertainty about SEC enforcement of insider trading laws, according to Inside Facebook. Bloomberg reported yesterday that Linkedin and Zynga are both considering limits on employee stock sales as well, with insider trading being cited as a concern.

SecondMarket VP of public affairs, Mark Murphy, said consolidation of ownership is likely another driver for such restrictions. “Companies are going to want a controlled environment,” he said. “A lot of times early shareholders aren’t aligned with the company. This control is really an opportunity to consolidate the shareholder base.” SecondMarket allows companies to control when and to whom employees can sell stock.

The ability to restrict employee stock sales does prevent insider trading to a large degree, but it also drives down demand while allowing only favored investors to buy in before the companies go public.

Asked about additional controls in place to prevent insider trading, Murphy explained, “You can’t contract and defend against fraud. We put in all of our sales agreements that the seller has to attest that they are not in possession of material non-public information … If they choose to defraud a buyer, there’s not really much you can do to that.”

On the demand side, asset managers conducted over 51 percent of transactions in Q1. Individual accredited investors were the buyers in over 16 percent of transactions, while venture capital firms and secondary funds accounted for around 10 and 8 percent respectively.

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On the supply side, former employees represented about 75 percent of sellers, while founders and current employees were sellers in 10 percent of the deals. Company investors were sellers in less than 6 percent of all transactions, a decrease from over 12 percent of transactions last quarter.