Private Secondary Market - The Other Side

The biggest criticism that mars Private Secondary Market is that all the activities, all the transactions happen under immense Information Asymmetry and hence these are inefficient markets. The trading takes place in a somewhat opaque market accessible to only a relatively privileged class of investors. The market makers do try to provide as much information as they have access to and are permitted to but at the end of the day what they are doing is simply increasing the velocity of transactions made under poor judgment. So there is a question mark on the reliability on the valuation in these markets:

• Efficient Market Hypothesis says that market prices fully reflect all the available information. Can we say that in secondary marketplace, there is a high level of information asymmetry and hence the stock prices in this market do not reflect a fair value? 
• The volume of transactions in these markets is too small compared the same in a public listing and any valuations derived out of these small number of transactions can be misleading.

Many private companies attract new talent by giving the equities as one of the incentives but restrain their employees to trade in the private marketplace. This makes sense as the employees will have far more knowledge of the company performance and can lead to insider trading. There is no clarity on whether insider information is allowed in the trading of private stocks. But these markets in a way encourage the employees to leave the company as the share restrictions are not binding once the employee is no more in company’s payroll and they can cash out while the company is still growing. Certain companies like Zynga try to tackle this issue by having designated trading windows during which its employees can sell their stocks. But even when employees or founders are allowed to offload their stocks, a lower equity stake might result in a lower effort from them towards the company’s success.

With the rise of these marketplaces for raising capital, the private companies are remaining private for a longer period. Most of the current players like SecondMarket and SharesPost also act as placement agent providing advisory services to the investors. These markets are slowly becoming a strong viable alternative to public offering and hence are proving to be one of the many factors for a steady decline in the number of IPOs listed in U.S. The result is that NYSE Euronext is now ready for a foreign acquisition with NASDAQ OMX group trying to avert it by offering to take over the NYSE.

The market is too young and vibrant to blame on the pertinent gaps. There is little doubt that they are indeed helping in capital generation for early growth start-ups and generating liquidity for illiquid assets. They need to ensure that more data, analytics and research reports are accessible to the market participants to introduce more transparency, increase the number of transactions and improve the fair value of these transactions. One question remains as to how average investors can be part of successful start-ups growth story before these companies go through a public exit or become too matured to have similar growths?

Private Secondary Market - The Utility

Private Secondary Market has been gaining prominence due to the eye-popping valuations of a number of social media companies in such markets where accredited investors (requirement by SEC for exempted transactions as defined under Regulation D of the Securities Act of 1933 to ensure that the participants are sophisticated with ability to bear the economic loss in case any in the investments made and they abide by the resale restrictions as placed by the company whose stock is being traded) generally trade on private companies. This Marketplace allows privately negotiated sales transactions to trade illiquid, restricted securities and facilitate alternative investments like private company stock, collateralized debt obligations, bankruptcy claims and auction rate securities. The investors are promoted to capture the illiquid premium and hold on their stakes for longer period knowing that their assets are not largely co-related with the public market. Eminent players providing such platforms are: Gate Technologies, SecondMarket, Xpert Financial and SharesPost. Through these markets, the small cap early stage start-ups are now getting access to funds without getting involved into the arduous legal process and costly financial disclosure required under the Sarbanes-Oxley Act. Since the trading occurs without any declared financial information of the traded stock, this marketplace attracts investors with a higher risk tolerance such as an archetypal startup investor. LinkedIn is one of the first social media companies to have come out of the secondary marketplace and graduate to full-fledged IPO stardom.

With the advent of this marketplace, investors no longer need to wait for a company’s public listing and private companies get the option to create their own customized liquidity program. The platform currently does not support shorting, margin, derivatives or manipulation and hence seems to be more untarnished. Investors here are actually more interested in flourishing the emerging private companies and make them capable of generating optimal investment returns. With the likelihood of a higher valuation, an increase in brand awareness and a greater ability to attract additional capital, there has been a surge in the number of U.S. based companies participating in the secondary marketplace. 

As per SEC rule, if a private company exceeds 500 shareholders, then it has to register all its equity securities with SEC and start disclosing its financials which is what Facebook might have to follow soon as it has passed this limit. But recently, a new legislation to revise the 1964 Securities Acts Amendments has been introduced which include raising the private company’s shareholder’s count from 500 to 1000 and exempting accredited investors and company employees from this count. Such a change will certainly give a thumbs-up to the marketplace for private shares by enlarging the potential investors’ pool in a company. This will tempt companies to remain private a bit longer using the liquidity derived from the secondary marketplace and enable them to emerge stronger for an eventual public exit. Thus instead of prematurely going public and risking their stocks in the hands of shorters , traders and manipulators, the companies can more effectively control their liquidity and shareholder base using this marketplace.

Getting out of Facebook Fatigue

We have a saying in India - "Nayi nayi Dulhan sabhi ko achi lagti he" (Everyone like the new bride). Can the same be said about Facebook now when the number of FB users in U.S has gone down for second straight months? No doubt that Facebook brought us closer to our friends , made the web world a small place to hang around but also brought the need of managing our online image and hence the need to self-censor. Plus those frequent irritating updates on your newsfeed from one or two individuals in your list making you think if you really want to know about all their activities until you want to sleep with them.

There is no doubt that facebook growth at some point of time will moderate given the fact that it depends on the internet penetration of any given country. The law of diminishing factor will start playing its part. So it should not lose sleep over the stagnating number of users but rather focus on how much average time its users are spending on Facebook, how much it can engage its users. If this user time is decreasing or stagnating , then it should certainly be wake up call as it will directly impact its advertising revenue. It is still a smaller player than Google as far as the ads revenue are concerned but certain to go through the adoption curve which perhaps would tilt the revenue share the other way.

At times, people get confused and start valuing a web company on the basis of the extent to which it engage its users.For example , Angry Bird - the game is inherently very engaging and the player gets so immersed in it that he/she gives little notice to the ads ; so it still proves to be a bad business. Now take Google, they increased the value of their Adwords by creating several non-immersive pages around google.com that makes us sitting on its sites for far more time than say when Google started. The adwords remained the same , the ads quality is more or less the same, even the way they try to get noticed is same but still we are seeing more of them with more opportunities to click on them. And then they introduced the win-win adsense and started syndicating the ads to billions and now with Android , they have captured the mobiles space. 

So here is the lesson for Facebook - Invent multitude of products and features as done by Google. But they have not done it yet. Facebook.com needs be more than a place where we can share some updates, chat a bit, tag friends, upload some photos, and do a bit of gaming - not one where we come only to refresh ourselves , sort of entertain ourselves unlike Google where we go for our needs - searching , gmailing , sharing docs et all.

The First Day

The Beginning of the Social Media Stock Bubble?

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Will Facebook Kill Micropayment Sites?

Simple it is - You post a link or write a note and people liking it on Facebook. Now extend this simple use case - You get credit points from Facebook for each like on your wall and similarly credit points deducted for each like you make on other's wall. After the netting process, you are left with a lumpsum credit say at the end of a month which you can convert for a real purchase online or say a coupon. Will this be the next level of social interactions? One Click Monetization of our social life on the web? The number of 'likes' will decrease perhaps on the fear of we losing out our points but will the inhibitions and quandary be still there while supporting a cause strong enough for an adrenaline rush within.

The case of Flattr

I remember signing for Amazon , putting my credit card details and then carry on with whatever i want to purchase. Unlike the other online buying sites (say Makemytrip.com or irctc.in) , i need not give my card details after the first purchase; they pick the predefined address and card details. Now think of a restaurant with no price list. Its totally left to the discretion of the customers as to how much they want to pay - basically extending the tipping etiquette to a full swing. Now what if it happens for the loads of online contents - articles,  blog posts, videos et all. This is what Flattr tries to do - providing a quick one-click easy way of paying to online contents. 

The image shows what put them to popularity chart. After Visa, MasterCard and Paypal closed their channels, Flattr was one of the few remaining medium through which people could donate to wikileaks. You just need to create an account and start embedding within their blog the flattr button like the one below.

Anyone else having the flattr account can use this button to like and pay/donate.Flattr makes revenue by cutting 10% of the money made by the content provider as their fee.

Cultural Catch: In simple words, voluntary payments are still like the tip we pay in restaurants, an etiquette that has survived years to become a collective habit amongst the masses.But do micropayments site such as this one have this time to catch. By the time they will do, a Facebook or a Google is sure to catch on this trend.

Social Network Size : How many can You Handle?

When i walk through the lanes of my hometown , i know everyone around knows me there. The people at smaller places are much more familiar and friendlier with each other than those living in big cities(Who has time?). Why so? Is it the time factor only?

In the earlier post on What is Your Online Social Limit? , a question was raised on the Bounded Rationality while we maintain our Social Relationships. Has our Social Network changed with the emergence of New Media? Has the technology expanded it?

Our 'actual' and 'real' friends still are very few limited by our own human nature and capabilities rather than technology. Social media is allowing us to 'maintain' our friends (who otherwise would move on slowly) in the rapidly changing world. As the old saying goes 'Out of Sight means Out of Mind', these sites ensure that friends are never out of sight and hence mind. They help us integrate our networks and rebuild (virtually) our old and many new communities. But where to stop? As we have seen in the drawbacks of Network Effects , after one point any new addition leads to congestion and slowly the value of the product/network/connections starts diminishing.

One School of thought says irrespective of the limits provided by these sites , most of human beings can maintain , nurture and sustain around 150 meaningful relationships at a time , online or offline it doesn't matter. This 150 is what we call as Dunbar's Number. It is considered the basic building block for human organizations (from many traditional corporates to Roman Army - are organized around this one Dunbar Number). Groups less than 150 members can function without any formal hierarchy and structure and hence minimal level of bureaucracy. Everyone knows everyone else and how they are related to each other in such groups.But with increase in level of social complexity in our relationships, this number seems to be getting reduced to a lower level. The average number of friends a Facebook account is currently 120 and (try/check yourself) the number of such friends whom we frequently interact is quite small and STABLE.

Here is this Social Networking Site which is trying to leverage on this phenomenon and restrict the number of friends we can have to 50.

They position themselves as 'The Personal Network' allowing anyone to share the moment (Photo Sharing) with his/her close friends (maximum 50). Hence , while you form your high quality network and share with only those who matter the most , the upper limit ensure that your network is not cluttered with just anyone and everyone.

Beyond 150?

Do we really socialize in big networks? Do we really so called 'network' at all then? We are merely broadcasting (advertising?) our lives to a layer built of acquaintances. Our real intimate friends are still the same - consistent and stable. One way to make meaningful networks is to divide your online friend-list into smaller units (functional , regional , etc) - That is the whole purpose of Tags and Labels for our contacts which we ignore most of the time. Such filters aligns the network's relevance towards the particular need at hand.

So is Big the new Small?

I have been living away from my home since more than 10 years now. From high school to undergrad to work to post graduation , one thing i have noticed that most of the time it is not advisable to have your best friend around as your roomie or as your flat mate or as your working group partner. The magic just wanes away slowly. The strong ties are an expensive bet.

Social Networking sites has given us the ability to build big networks comprising of weak ties which requires less time , dedication , inhibitions and commitment from both end and most of the time very valuable (getting new job or new projects or new client or a recommendation , idea or advise) in harnessing the true value of our network. And the bigger your social network is , the more are the chances that you wont be 'out of sight' of many of your connections. There will always be stream of updates , status changes of yours reaching out to your connections and vice versa and All Live. This is where Allen curve comes - which says that there is an exponential drop in the frequency of communication as the distance between engineers increases which implies the more closer we are , there are more chances that we will communicate. Online Social Networks bridge the gap and the distance and increases our chances of having a future communication with our connections.

You are the Apple of my i...phone

Mashable conducted Your Best Valentine One-Liner Contest calling for best Social Media and Tech Love Lines. The current post collates few pick-up lines submitted as part of the contest. Wherever possible , an attempt has been made to ensure that we have the source's twitter handle mentioned. Enjoy !

The below 5 entries were the winners chosen by Mashable:

Linux is Red, Windows is Blue. But my Android is downloading an app kerneled with you - SVAllie  

You auto-complete me - kamakil

You're the CSS of my HTML - ganyabubrown

Justin Bieber may have Twitter, but you're the No.1 Trending Topic in my heart - jehc180

Baby , you light my FireFox - justinbbradford 

One Bonus pick-up line :

I wanna be on you like Mashable on Social Media - chelsearmg

And Others:

Baby let's go back to de 60's and have a linux love - lulamedia

I fell in love the very first time I googled you - genovevades

I “Share” the things you ‘Tumbl.'

I “Like” the stuff you ‘Tweet.’

I’ll even catch you when you ‘Stumble.’

But most of all, you’ll always be my ‘Facebook Official.’

- ajun519

You are trending in my heart, would you mind if I promote you as #lifepartner  - Vikas Gowda

No one's got style sheets like you. now let's use dirty markup language & take our html to xhtml - caseypenney

You had me at hashtag! It was love @ first mention - wjkievit

Hey baby, wanna come over to Myspace so I can Twitter your Yahoo until you Google all over my Facebook? - pmok

Roses are #FF0000, Violets are #0000FF, you follow me and I'll follow you :) - designnerdnikki

You make me crash like microsoft products - emre_yilmaz

The only thing that i can't replace with a small shell script is you - emre_yilmaz

Let's reboot our love - shaunstripling

If I said you had a nice <body> would you hold it against me? - twitlessbanter

You've stolen the ASCII to my heart - goliath_growl

Baby, we live on opposite sides of the world, but I'm willing to bit.ly the link between you and me - changchaang

You're the SEO-nly one for me - flick235

You make my heart Twitter - kellyp7

I find you whenever "I am feeling lucky" - jeetuudasi

Check-in with me for a mega-byte - heathersocial

Your RSS feeds my soul - douglasburr

Will you add_action() if I enter The Loop - huzaifahm

#FF0000 is red, #0000FF is blue, but hex codes can't show how much I 01101100 01101111 01110110 01100101 you - robdix

Yelp is red, Twitter is blue, Can we be Facebook Official? I "Like" you! - lazuber

You still reside in my cache :) - vaibhav5388

I wish you were sin^2x and I was cos^2x cause together we'd be ONE! - pyneeapple

Kindles are "read". Dvds are "blu". I "Like" you on Facebook and I "Follow" you too - TalentSourcing

Follow me and I will poke you forever! - priyaconsulting

Roses are red Violets are blue, I'll never find a reason to Ctrl+Alt+Del you! - jessisoverrated

You tweet me off my feet - kelseyagnew

She's beautiful and smart, not just mashable! - jdbriglia

You turn my floppy into a hard drive - ponyrides

Give me your hand, and I'll take you to the cloud - aseesk

Muslim Brotherhood in the Social Media Era

Okay , i was confused , ignorant perhaps. I really didn't know what Muslim Brotherhood actually means. Yes these two are the catch words if you open any news channel , site or feed , in all probability you will either find them in the headlines or on the bottom ticker. One headline said : 'Muslim Brotherhood to talk to oppositions in Egypt' and i just didn't had any clue.

Wikipedia says that having founded in 1928 in Egypt, it is "the world's oldest and largest Islamic political group, and the world's most influential Islamist movement". Ohhh now i understood why president Obama chose Egypt and Cairo University address last year to reach out to Muslim world.

This group is banned in Egypt since more than 50 years now.Their members fight the elections as independents and still form the largest opposition group in the country. Hence we are hearing about them so often now when protests are in full swing against the soon-to-be-ex-president Hosni Mubarak.

Now take this : They are seeing an influx of new gen youth with an active cyber life breaking the old ideology of Jehad , accommodating the liberal thoughts and often critical of their own organization. And are they against the WEST (the decades old fashion statement)?

Did we find any anti-US slogans, SHOW ME ONE in the current ongoing Egypt's pro-democracy protests? In fact twitter is filled with praise for western reporters (Anderson Copper, Sonia Verma et all) for covering the agony these people are going through. If you are a western reporter at the Liberation Square , the crowd cares for you more because they look up to you helping them to get the freedom they are longing for. The 3 western companies Google+Twitter+SayNow gave rise to new Collaboration for the Cause in form of Speak2Tweet and the other one Facebook gave them the courage to mobilize through various FB pages.

So where United States stands? The dictatorial regimes in Arab worlds are (financially) supported by them. There is a catch here. They don't support them for carrying out this dictatorship. They support them for their own military mileage , with or without democracy it doesn't matter to them. Tell me a current regime who could have been democratic had US not supported them the way it has as of now. US was never the cause for this regime effect.

Whether its Egypt or Jordan or Yemen or just any state dominated by any religion , caste and creed , these people want to be part of the economic and social development, part of globalized flat world, a better life which they were deprived of. Root of Fundamentalism comes from not getting the pie of these developments , it comes from being left out , from not moving on and changing with time. Now these new additions to the brotherhood want to be like us, yes the fortunate us. They are not jealous , they are aspirants. They are not destructive , they are collaborative. They are not aliens, they are us.

And they are coming. We should embrace and share rather than create doubts in the minds. The dangers part of these minds erupts on not being accepted and respected. Once we the fortunate ones start doing it, the world will be a better place. 

Collective Intelligence is said to be the main driver of all future innovations. The more diverse , unique we are the better the Collective groups will be. Hence we should cheer not fear from this cry of freedom from Egypt.

One problem is that protagonists of the Muslim Brotherhood and even those using it currently left and right with the pro-democracy uprising all over don't have any clue what it means now. The term has changed in front of them in their own lifetime. The New Media has done it. Slowly transforming the world we live in.

Who says the next war will be for currency , crop or crime. Let the world get rid of its ammunition , lets have more treaties to remove them all and fight it all out herein @ SecondLife . The winning nation will get what it might be (virtually) fighting for.

What is Your Online Social Limit?

Okay , so i came across one Facebook profile and got stumped by the number of Facebook pages (see below) he has liked. Yes yes the count is in excess of hundred. Got  interested to know how he actually keeps up-to-date with his facebook news feeds. Won't the updates from these numerous pages cannibalize those pouring from his FB friends? And what about the Bounded Rationality concept being taught in our MBA classes? Will he be actually able to 'consume' the contents thrown by this pages? Perhaps he should have chosen Twitter (yes , thats how the twitter is being used now , more like feed/reader).

And can he keep on liking the pages the way he is doing? Can we keep on following on twitter and making linked connections endlessly? No flat no , it would convert the social space into spammers paradise, infact we do see many so called 'tools' which 'connects' to the unknowns basically in pursuit of their own marketing motives. So lets see the limits imposed by the social networking sites to ensure they remain relevant and avoid the spammers' dominance in their network :

Linkedin

• The status updates has a limit of 700 characters but keep it to 140 incase your linkedin account is linked to your twitter account.
• Total number of Invitations any one can send : 3000
• Number of Linked Groups any one can join at any time: 50
• Maximum number of connections one can have : 30, 000
• Also , the number of additional invitations one can receive is a direct function of the acceptance ratio of the invites sent earlier by the account.

There are basically 2 types of Linked Accounts:

1. LION: Linkedin Open Networker - They just go and connect with anyone and everyone sending and accepting invitations with no selectivity and inhibitions. Majority of them are regular recruiters who wants to broaden their network to find the best suitable candidates for their job openings.
2. Non-LION : They connect with only those they know and have some sort of personal or professional relationship. They believe more on the quality of their connections for any potential opportunity in case they require.

Facebook

• Maximum number of Facebook Groups you can join at one time : 300
• Number of friends one can have in his/her friend list : 1000
• Maximum Number of friends one can have is 5000 after which no friend can be sent an invite. But still one can follow any additional person through his/her fan page. What we lose out is having a sense of personal touch with such friends
• There is no limit on number of fans a facebook page can have.
• The status updates has a limit of 420 characters.
• The maximum number of pending friend requests one can have : 120

Twitter

• Maximum number of twitter account you can follow = Max(2000,110% of your follower count)
• There is no limit on the number of people following you.

Twitter in due course of time seems to be converging towards becoming a jungle of affiliate marketers. These accounts follows you indiscriminately so that you follow them back and if you don't in next 2-3 days they unfollow you. They just  want maximum followers for them who can click on the links they tweet and eventually help them get those pay per click advertising revenue. If you have a public (or not protected) twitter account , just ignore them once they follow you. They will go , come back again and again but don't you follow them back as they don't add any value to your network. Hold on.