SecondMarket – Check Cashing for the Tech Set: While the chattering classes are busy discussing a former C-level Facebook executive taking the reins at MySpace (see Michael Arrington’s piece from Techcrunch), many employees inside of Facebook are focused on an issue that is ancient by the standards of internet time: What happens to the value of their vested options if the company – which is currently seeking to raise billions of dollars – suffers a substantial cramdown in its next valuation? For that matter, what of any startup founding team whose hope of a strategic sale (IPOs are now the stuff of myth) is postponed years due to the recession? The answer, writes Claire Cain Miller of the New York Times, is SecondMarket, an online trading floor where buyers and sellers are matched for exchanging illiquid shares in private companies (including Facebook, Twitter, and LinkedIn). While buyers are limited to “qualified investors” of a seven figure net worth, the number of early employees looking to cash out could create a buyer’s market strong enough to generate substantial interest.
The Smallest 500 Employee Company Ever: Josh Green, a general partner at MDV-Mohr Davidow Ventures, was on Capitol Hill along with several entrepreneurs to lobby Congress to reverse a ruling that has made many venture backed companies ineligible for some types of funding including SBIR grants. One group of startups that has been particularly hard hit by this decision are biotechs as investors generally want these companies to focus exclusively on a lead molecule leaving other earlier stage research to perish on the shelf without grant support. The current rule actually stems from several rulings from the Small Business Administration (SBA) beginning in 2001 that make companies who are majority owned by venture capitalists “size out” of the SBIR program. Under the ruling, these companies must count all the employees of all companies owned by their venture investors, a tallying method which often results in totals over the 500 employee limit. Really, SBA, really?
