When a big company, particularly a media conglomerate, acquires a startup, the startup’s employees tend to lose all incentive to perform. They’ve made their money, and even if they get AOL stock, or Gannet stock, or IAC stock, their actions and the success of their individual unit probably won’t move the needle on the conglomerate’s overall value.
SecondMarket has a plan to change that for media companies. The private company shares marketplace is in the process of launching a product that allows conglomerates to better incentivize the members of its subsidiaries. It’s essentially a private company stock exchange which makes each subsidiary within the parent company liquid.
The way it works is the parent company assigns a value to the property, which needs to report its profits and losses (at least internally) as a standalone entity. SecondMarket sets up an exchange where the parent company owns all of the stock. It can then give it away to employees or sell even it to them. The parent company keeps the voting stock and controls the parameters. Outsiders can’t trade, but accredited members of other segments within the company can. MapQuest employees could buy Huffington Post stock, for example.
SecondMarket reps explained that the media companies it’s in discussion with like the idea because it makes them more attractive acquirers to startups and new media companies that might see them as stodgy or stagnant. Plus, earnouts can be messy.
Via PandoDaily