SecondMarket, WikiLeaks, and Institutional Innovation
December 13, 2010 § Leave a comment
Institutional innovation sounds like a contradiction in terms. How do you take a clunky, bureaucratic organization/process/thing and transform it into something modern, efficient, and useful? In my experience the only way to innovate institutions is to force their hand – by creating fundamental change they can’t ignore.
Take SecondMarket, a company that (among other things) helps privately held companies postpone the hassle of an IPO while gaining some much-needed liquidity. The internet is filled with tales of VCs pushing for the first Microsoft/Google/Amazon buyout offer. SecondMarket provides startups with an alternative to dealing with jumpy VCs or angel investors – leveraging a controlled private market for transaction of private stock. It’s totally legitimate: Facebook employees have already used SecondMarket to cash out millions of dollars of options pre-IPO.
Start-up employees: there are now fewer institutional barriers separating you from your cash. Start-ups: you now face less pressure to sell out, and less pressure to go public.
With liquidity out of the picture, there are plenty of reasons to avoid an IPO (beyond the paperwork). Public corporations are forced into a weird sort of transparency. Yes they must publish a set of public financial reports, but this blog for the Harvard Business Review argues that the quarterly reports public corporations publish are meaningless in the modern world. Further, it argues that the fundamental volatility of the stock market is based on infrequent access to meaningful information. This thirst for information is what made the WikiLeaks scandal possible, and is the reason WikiLeaks will have copy-cats. Sure, real-time cooperate reporting sounds scary, but in our information-addicted world, privileged information isn’t sacrosanct – for public or private entities.
To me, SecondMarket and WikiLeaks sound like the beginning of an important (and inevitably profitable) trend. Transforming outdated institutions for the modern world could be the next big opportunity. WikiLeaks will inevitably force some hands, and it will be interesting to watch SecondMarket’s impact on the (?) First Market.