The Private Market Is Hot Hot Hot

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Goldman Sachs's (GS) $450 million investment in Facebook and the $200 million that Twitter pulled in from such investors as Kleiner Perkins illustrate the changing dynamics for hot startups. With no shortage of late-stage funding, private market trading allows hot companies to remain private longer."The cachet of going public has clearly diminished from what it was 10 years ago, and instead of rushing to file, they are delaying," said Seth Levine, managing director of the Foundry Group, on a conference call Thursday to explain 2010 full-year and fourth-quarter venture capital data from the National Venture Capital Assn.

Postponing an initial public offering may be good for founders, who want to maintain some control and avoid the scrutiny that comes with an IPO, but it doesn't always help employees and investors looking to cash out. That's why SecondMarket is finding success: It's tapping the desire of private shareholders to sell and matching it with investors looking to get a piece of the hot new startup.

Trading isn't limited, however, to providing sellers an exit. Sales of LinkedIn shares show that buyers are anxious, as well, to get in on startups before their public offerings. Interest is also high in Groupon, which recently spurned Google's (GOOG) advances and now appears to be readying an IPO of its own. Even with added government scrutiny and competition from electronic trading platform Xpert Financial, the private markets will most likely continue to thrive as investors look for ways to jump into the fray.

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