The secondary markets for private company stock may seem like the Wild West, with unstructured valuations and less than ideal information disclosure.
Yet several securities laws apply to transactions now taking place, and the onus falls on companies to follow rules meant to level the playing field, including making some confidential information about their businesses public.
This was the key takeaway of a National Venture Capital Association webcast discussing the recent phenomenon of secondary market trading. The bottom line is this: startups interested in permitting their shares to trade on a platform such as Second Market or SharesPost need to take steps to protect themselves from potential lawsuits.
“I think companies are saying, ‘I do want some information out there so there won’t be disparities of information,’” said Francis Currie, a partner at the law firm of Davis Polk & Wardwell.