Harvard Case - SecondMarket - Providing Liquidity for Shareholders of Privately Held iContact
"SecondMarket - Providing Liquidity for Shareholders of Privately Held iContact" Harvard business case study is written by William A. Sahlman, Ramana Nanda, James McQuade. It deals with the challenges in the field of Entrepreneurship. The case study is 26 page(s) long and it was first published on : Nov 10, 2011
At Fern Fort University, we recommend that iContact explore a strategic partnership with SecondMarket to enhance liquidity for its shareholders while maintaining its private status. This partnership will allow iContact to capitalize on the benefits of increased shareholder engagement and access to capital without the complexities and costs associated with an immediate IPO.
2. Background
iContact, a leading provider of email marketing services, faced a challenge: its shareholders, primarily venture capitalists and early employees, desired liquidity for their investments. However, iContact, with its strong growth trajectory and potential for future expansion, was not yet ready for a traditional Initial Public Offering (IPO). Enter SecondMarket, a platform specializing in providing liquidity for shareholders of privately held companies.
The main protagonists in this case are:
- iContact: A fast-growing, privately held company seeking to enhance shareholder liquidity without going public.
- SecondMarket: A platform offering liquidity solutions for shareholders of private companies.
- iContact Shareholders: Venture capitalists and early employees seeking liquidity for their investments.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Financial Strategy, specifically focusing on Capital Structure, Liquidity Management, and Shareholder Value Creation.
Financial Analysis:
- Financial Statements: iContact?s strong financial performance, evidenced by its consistent growth in revenue and profitability, suggests a healthy business model.
- Cash Flow: The company?s positive cash flow indicates its ability to generate sufficient funds to support its operations and future growth.
- Capital Structure: iContact?s reliance on venture capital funding presents a challenge for shareholder liquidity.
- Valuation Methods: The case study does not provide specific valuation information, but it highlights the potential for iContact to achieve a significant valuation based on its market position and growth prospects.
Strategic Analysis:
- Growth Strategy: iContact?s focus on expanding its market share and developing new products demonstrates its commitment to long-term growth.
- Business Model: The company?s subscription-based model provides a stable revenue stream and predictable cash flow.
- Competitive Landscape: iContact operates in a competitive market with established players, highlighting the need for continuous innovation and differentiation.
Key Considerations:
- Shareholder Expectations: iContact?s shareholders are seeking liquidity, which can be achieved through a partnership with SecondMarket.
- Market Conditions: The favorable market for technology companies suggests a potential for successful fundraising through SecondMarket.
- Long-Term Growth: iContact?s commitment to long-term growth aligns with the benefits of maintaining private status.
4. Recommendations
iContact should pursue a strategic partnership with SecondMarket to address the following:
- Enhance Shareholder Liquidity: SecondMarket can provide a platform for shareholders to sell their shares to other investors, offering immediate liquidity without requiring an IPO.
- Access to Capital: The partnership can provide iContact with access to additional capital through private placements facilitated by SecondMarket.
- Maintain Private Status: This approach allows iContact to avoid the regulatory complexities and costs associated with an IPO, enabling the company to focus on its growth strategy.
- Strategic Partnership Benefits: SecondMarket?s expertise in private company liquidity and investor relations can offer valuable insights and guidance to iContact.
5. Basis of Recommendations
This recommendation considers the following factors:
- Core Competencies: iContact?s core competency lies in its email marketing platform and its ability to deliver value to its customers. This partnership aligns with its focus on growth and innovation.
- External Customers: The partnership will enhance customer satisfaction by providing a more liquid investment environment for shareholders, potentially attracting new investors and talent.
- Competitors: By maintaining its private status, iContact retains its competitive advantage by avoiding the scrutiny and potential distractions associated with being a public company.
- Attractiveness: The partnership offers a compelling solution for shareholder liquidity and access to capital, enhancing the company?s overall value proposition.
- Assumptions: The success of this partnership relies on the continued growth of iContact?s business and the ability of SecondMarket to attract a sufficient pool of investors.
6. Conclusion
A strategic partnership with SecondMarket presents a viable solution for iContact to address its shareholder liquidity needs while maintaining its private status. This approach allows the company to focus on its growth strategy and capitalize on the benefits of a strong private market.
7. Discussion
Other Alternatives:
- IPO: While an IPO could provide significant liquidity, it also involves significant costs, regulatory complexities, and potential dilution of ownership.
- Debt Financing: Debt financing could provide capital but would increase iContact?s leverage and potentially limit its flexibility.
- Acquisition: An acquisition could provide liquidity for shareholders but would require a suitable buyer and could disrupt iContact?s growth strategy.
Risks and Key Assumptions:
- Market Volatility: The success of the partnership depends on the stability of the private market and the ability of SecondMarket to attract investors.
- Valuation Discrepancies: The valuation of iContact?s shares on SecondMarket may not reflect the company?s perceived value, potentially leading to dissatisfaction among shareholders.
- Investor Interest: The success of the partnership relies on the availability of sufficient investors interested in purchasing shares of a private company.
8. Next Steps
- Due Diligence: iContact should conduct thorough due diligence on SecondMarket, evaluating its track record, platform capabilities, and investor network.
- Negotiation: iContact should negotiate a mutually beneficial agreement with SecondMarket, outlining the terms of the partnership, including fees, liquidity options, and investor access.
- Implementation: iContact should implement the partnership by onboarding its shareholders to the SecondMarket platform and promoting the opportunity to investors.
- Monitoring and Evaluation: iContact should regularly monitor the performance of the partnership, evaluating its impact on shareholder satisfaction, liquidity, and access to capital.
This partnership offers a strategic solution for iContact to address its shareholder liquidity needs while maintaining its private status, enabling the company to focus on its growth strategy and capitalize on the benefits of a strong private market. By carefully managing the risks and leveraging the opportunities presented by this partnership, iContact can achieve its long-term goals and create significant value for its stakeholders.
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Case Description
In 2011, SecondMarket was an online platform that facilitated secondary transactions of illiquid assets, including private company stock. This case explores reasons for the decline in small-cap IPOs in the United States from the 1990s to the 2000s and how the emergence of SecondMarket provided liquidity to privately held companies like iContact, an email and social marketing software-as-a-service [SaaS] company.
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