Does the LinkedIn IPO Validate Secondary Market Trading?

Published on May 19, 2011
by Liz Gannes

LinkedIn will price its shares at $45 in its IPO on the New York Stock Exchange today. That’s significantly more than $30.79, the price per share when SharesPost held a major auction for 95,500 LinkedIn shares on January 28.

At $30.79 per share, LinkedIn’s valuation was $2.8 billion. Now just a few months later, LinkedIn is set to be valued at $4.5 billion.

That’s a welcome data point for secondary markets. “It’s a meaningful premium to where stock had been changing hands on SharesPost,” said SharesPost CEO David Weir in an interview on Wednesday.

In addition to being the first major American social network to go public, LinkedIn is the first company to have an IPO that was actively traded on secondary markets like SharesPost and SecondMarket, which offer liquidity for shareholders of high-profile private companies that are profitable and growing. It’s a phenomenon that only became popular in the last year or so.

LinkedIn accounted for seven percent of transactions on SecondMarket in the fourth quarter of 2010, the last time that firm broke out stats on a per-company level. SecondMarket doesn’t disclose pricing details.

The question is, if IPOs are back, does that remove the demand for secondary markets?

It wouldn’t have looked good for SharesPost if there were less value given to LinkedIn shares on the public markets than the private markets.

SharesPost investors–who spend a minimum of $100,000–must make stock buys based on hype and expectations, because private companies do not make much in the way of financial disclosures.

LinkedIn CEO Jeff Weiner actually spoke specifically about the difference between private market and public market trading in an interview with CNBC in November. Asked whether companies still need to actually have an IPO, now that secondary markets exist, he said:

As interesting as the second markets are, you’re still talking about valuations that are not necessarily based on perfect information. You’re talking about liquidity events that come and go through very specific windows, or trading policies that companies are now creating in real time, because this is all evolving as we speak, to some extent. I think there’s something to be said for the event itself, and the formality with regard to liquidity and valuation, etc, and something to be said about establishing the company in the marketplace.

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