Back in 2010, I disclosed that I’d become the owner of some Twitter shares. I sold them this week. The story provides a look into the world of public trading of private-company shares. This is a space that was new to me and I found interesting; maybe you will too.

The Basics · Companies are either public or private. A public company’s shares can be bought and sold by nearly anyone on your friendly local stock exchange. A private company’s shares can in principle be bought and sold, but there are a lot of laws and regulations which restrict this process. They are there for the excellent reason that private companies aren’t required to, and generally don’t, disclose their financials, so there’s less confidence about the value of their equity.

Recently, there has been widespread interest from people wanting to own a piece of well-known private companies like Facebook and Twitter, and a mirror interest from insiders who own shares and would like some hard cold cash instead.

When there’s something that some people want to buy and others want to sell, no force of nature nor human rule can keep them apart. So we’ve seen the arrival of outfits like SharesPost and SecondMarket, which match up buyers and sellers while attempting to comply with all the private-equity laws and regulations, and collect a commission for the service.

Why? · This is absolutely not a comment on Twitter as a company. When I care about something I use it and build with it and write about it; money operates on another dimension. I had a chance to sell some shares for a whole lot more than I paid for them, and that’s almost always a good thing to do. Maybe I will have left some money on the table, which I can live with.

I have another issue, as a blogger who writes about technology: Twitter is interesting. It’s been really tough to write about them, first because I’m a shareholder, and second because I guess Google+ might be a competitor.

I feel a little bit freed-up. In the past, you’d really need to wrinkle your forehead to figure out my biases. Now, if you don’t like what I say about Twitter, you can just dismiss it because I’m in the pay of a rival.

It’s still going to be confusing because I use Twitter, I like it, I encourage others to use it, and I have, as of now, 19,000 or so followers. Deal with it; life’s complicated. Slightly less so now, though.

How Much? · If you multiply the price I got per share by the number of shares outstanding, the product is roughly US $8½ billion. I avoid using the word “value” because nobody with any brains should put too much weight on this sort of transaction. In the terms economists use, the market lacks transparency and liquidity, and thus the signals it sends are muddy and ambiguous.

I have absolutely no opinion whatsoever as to what Twitter, as a company, is really worth.

How? · I contacted both SharesPost and Second Market via their Web sites. In both cases, a human reached out and wanted to talk. SharesPost said “Yeah, go ahead and list ’em, they’ll probably sell.” SecondMarket gave me the impression that my deal wasn’t really big enough to interest them; they seem less a market than a packager of big one-off deals. Fair enough.

So I listed on SharesPost; one of their guys contacted me right away and wondered if I would come down a bit on asking price, and if I’d consider selling less than my whole holding, which was an odd number of shares.

I said “no” twice and he came back almost immediately with a buyer for the lot at my price. The legal mechanics were disposed of smoothly and quickly, then we settled down to wait.

Why wait? Because, as is very common with private-company shares, Twitter has a 30-day “right of first refusal”. This gives them the right, when notified that someone is about to sell some of their shares, to step in and buy them or assign the right to someone they’d rather have as a shareholder. This is a very sensible rule.

In this case, Twitter exercised that right and thus the transaction didn’t go through SharesPost. I still had to pay their finder’s fee, but can’t complain too much; they did indeed find a buyer.

Closing Thoughts · This was the result of an angel investment that turned out pretty well. I guess it means that I should go make some more angel investments, but I’m kinda scared by the bubbly atmosphere out there and I think I probably won’t just now.

Seems to me that SharesPost and SecondMarket are providing a valuable service, and one that I don’t see any real problems with.

I really do wish Twitter the best of luck; it’s enriched my personal life, helped me hire a couple of smart people, helped me get my current job, and now it’s made me a few bucks too.

Here’s the business model I’d deploy if I were them: I’d insert ads into everyone’s Tweetstream. I’d publish stable APIs and invite anyone to use them for anything, with a single sternly-enforced condition: Don’t fuck with our ads.

But hey, they may well have a better idea. I hope so, because I’d like to still be using Twitter for a few years yet.


Comment feed for ongoing:Comments feed

From: Jon Ellis (Aug 25 2011, at 09:11)

Yes, i'm with you on hoping that they have a better idea than polluting the place with ads.

My conclusion is that 'ad supported' as the default answer is stunting the growth of more interesting solutions.


From: Norman Walsh (Aug 25 2011, at 09:21)

Twitter best be very cautious and discrete about ads in my tweet stream, or I'm going to walk away.

I'm getting sick and f'ing tired of ads everywhere.


From: John Cowan (Aug 25 2011, at 09:49)

It's funny, Norm; I haven't actually noticed an ad in years, so they don't annoy me. Something about them just makes my eyes slide away. In addition, ads tend to be on the right side, and because I enlarge most sites, the ads often disappear off the left margin.

When watching TV, I fast-forward through them, which is mildly annoying, though mostly because I tend to overshoot them.


From: DeWitt Clinton (Aug 25 2011, at 10:48)

Norman, how much would you pay a month for an ads-free experience? That's the calculus, I think.


From: Gordon Weakliem (Aug 26 2011, at 15:11)

Interesting calculus must be going on with these private companies - do we want these new stockholders, vs. do we have the cash to buy them out?

I'm a big fan of a straightforward value proposition - the entity that gets the value pays the freight. Seems to me with Twitter, the users with millions of followers are getting the most value out of the service. You want a million followers? That'll be $X/year, thankyouverymuch. If you want to post ads/paid placements to support your twitter feed, go for it.


From: Karen James (Aug 27 2011, at 07:12)

Can I ask how you arrived at your asking price? Were you able to determine their value with inside knowledge of valuation and/or the number of outstanding shares?

I ask because I have shares in a company who isn't willing to give me the # of outstanding shares or even a rough valuation, and I'm looking to sell them on SharesPost or SecondMarket, but unclear on what the asking price should be.


From: Tim Bray (Aug 27 2011, at 11:02)

Karen James: Good question. Another valuable service provided by SharesPost is a history of recent transactions, to give you an idea of what a reasonable price would be. I asked for slightly above the most recent transactions.


From: David Kitchen (Aug 29 2011, at 02:33)

I'd probably go with the adverts too, but on a sliding scale. Where X followers equated to Y adverts, or you could pay Z per X for an ad-free stream.

It feels a little dirty, in that it feels like extortion. But most people who value twitter (those who have a lot of followers and derive a value from it by using it to market) would probably pay... but those who didn't probably wouldn't begrudge the fact that they had this ability in return for a few adverts.

The problem with in-stream adverts is for those who are only just starting out and who have a few friends using it and are not following anyone popular. If you inserted adverts there, those people would have more adverts than content.

Twitter's IP and selling point would be to create an algorithm that could find the sweet spot for 'enough adverts to make money without enough that piss people off'.

It's a hard thing to solve, even my proposal wouldn't work too well for the new user who followed 30 celebrities and popular people and saw adverts everywhere. Twitter would need to work out how many adverts were already in someone's stream and reduce them accordingly.


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