SecondMarket Confirms Layoffs To Have Leaner Cost Structure, Become “Break-Even”

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SecondMarket’s CEO Barry Silbert just confirmed that the company had layoffs this morning. From a tipster, we had heard it was as much as one-third of the company’s headcount but SecondMarket says it was less than that.

The rationale? Basically, Silbert said that the company had grown a “bloated cost structure,” from when it had a model that was based on transaction fees. SecondMarket offers liquidity to privately-held companies by letting shareholders sell equity in a manner that’s largely controlled by the companies and compliant with SEC rules.

He called the decision “gut wrenching” and “stressful,” but said that the move would enable the company to have $25 million in cash in the bank and function on a break-even basis.

It’s not the first time the company has had layoffs. They had to let go about 10 percent of staff last year in the wake of the Facebook IPO. The social network had made up a meaningful number of private stock transactions on the platform and when it went out to the public market, the company couldn’t justify certain positions. In spite of the loss of Facebook, SecondMarket’s overall transaction volume even grew a little bit, buoyed by other growth-stage companies that have decided to hold off on IPOs and reward their long-time employees in other ways.

The company seems to be diversifying a bit beyond privately-held tech companies as well. Earlier this week, they convinced a boutique bank named First Advantage to delist itself from public markets and join SecondMarket’s platform.

Here’s Silbert’s statement and the company says it’s not commenting beyond this.

SecondMarket Org Changes
I admit it, I screwed up. While the transition of SecondMarket from a telephone broker of illiquid assets in 2005 to the technology-driven reinvented stock market that we are today has been quite successful, I have done a poor job managing our cost structure during this transition. As a result, there are a number of high quality, hard-working SecondMarket family members who are now looking for their next challenge.

So what went wrong? Reflecting on the past few years, the biggest mistake that I made was treating our cash in the bank and top line revenue as the ultimate gauge of the health of the company. The problem with that approach is that it helped obfuscate the bloated cost structure that we had in place from the period in our history when our model involved collecting a transaction fee by connecting buyers and sellers. Great business, but not predictable, not very scalable and requires substantial infrastructure costs – regardless of transactional volume.

Today, SecondMarket is solely focused on delivering a robust suite of capital, liquidity and communication tools to issuers (private companies, community banks, funds and student loan issuers). With this more scalable, predictable business model, we have decided to double down on what is working, eliminate any unnecessary costs and get our company back to the lean, mean, high performing organization that we once were before hubris took over. Basically, we need to act more like a startup and less like the large, bloated, slow moving organizations that we’re trying to disrupt.

This cost rationalization process has been gut wrenching for me, stressful on my leadership team and, quite frankly, the worst experience of my professional career. Yet I know it is the right thing to do and it is the right time to do it. Emerging from this process will be a company with over $25 million of cash in the bank, an expected break-even bottom line and a rapidly growing list of companies, banks, funds and student loan issuers that are joining SecondMarket. I remain extremely optimistic about SecondMarket’s future and the important role we plan to play in reinventing the stock market and redefining the modern company.

Finally, as I mentioned, there are a number of fine individuals who are now searching for an opportunity. Smart, capable people who would be an asset to any organization. I encourage those of you looking to add talent to consider welcoming them onto your teams.

Thank you for your continued support and encouragement.

Barry Silbert, Founder & CEO