You ever wish you could buy shares of stock in one of those hot private tech companies like Twitter or Facebook?
Well actually you can.
A company SecondMarket.com, acts a a middleman for insiders of private companies that are looking to sell some of their shares before the companies go public.
I inquired a few weeks ago about the availability of shares of Facebook.com and at the time they had 60,000 shares available at $31 per.
Are there drawbacks?
To start, in most instances your going to have to buy the whole available block of shares in one transaction.
So in the example I’m talking about, 60,00o shares at $31 a share comes to an almost $1.9 million dollar investment; no small amount of change.
Second, there is no guarantee that the company you buy stock in will ever go public and even if they do, it could be years.
Third, there is no guarantee that the price the shares will sell for on the open market, once the company goes public, will be any higher than your paying.
Fourth, since your buying from insiders, your shares are most likely going to be locked up for six months from the date the shares start trading, and you won’t be able to sell them for that six month period. You might therefore be buying restricted stock for the same price or less than free trading stock is selling for once the company goes public.
On the other hand if you find a hot startup, and get in early, you might make a huge pop down the line if you have the cash to tie up for a while.
Big risk, big reward and the bragging rights to say you own stock in something less than a few hundred people in the world own.