Here's How You Buy Facebook Stock Before The IPO

mark zuckerberg facebook

Photo: AP

Want to get buy a piece of Facebook?SecondMarket, the service that lets you buy private company stock, is your way in.

But first you must qualify as an “accredited investor.”

By SEC definition, an accredited investor earns more than $200,000 per year or holds at least $1 million in assets.

If you meet those qualifications and you pass SecondMarket’s criminal background check, the chances of you getting a chunk of Facebook are still slim.

Second Market rep Mark Murphy tells us the average transaction on the service is a whopping $2 million.

In addition, most investors are not individuals. They’re institutions like hedge funds and VC firms that the private companies choose to let invest in them.

If you meet all the requirements to begin trading, the process is relatively simple. You can either purchase stock on SecondMarket’s website or through one of their market specialists. 

Since Facebook makes up 45% of SecondMarket’s business, there’s a special process for trading its stock.

Here’s how it works:

  • SecondMarket evaluates seller interest before starting an auction.
  • Next, SecondMarket checks potential buyer interest.
  • Once both parties are set and a share price has been established, the bidding begins. The auction remains open for nine days.
  • At the end of the auction, the highest bidders take the available shares.
  • SecondMarket takes a cut between three and five per cent of each transaction. The cost is split evenly between the buyer and seller.
  • The stock is yours. These Facebook auctions take place somewhat regularly, so there’s plenty of opportunity.

And that’s it. If you can afford it, you can own stock in the hottest company everyone wants a piece of.

Select whether you are a buyer, seller, partner, or private company.

Now a window pops up that will ask you some basic questions. You'll have to select whether you're a buyer, seller, etc. again.

Now select your areas of interest. If you want to buy Facebook stock, you'll want to check Private Company Stock.

Fill out your basic contact information.

Tell SecondMarket how you heard about them.

Check your email. SecondMarket will send you a link to the user agreement. You'll have to agree and create your password before you can move on.

This is the welcome message when you log in for the first time. You can browse listings, but you won't be able to buy or sell until a SecondMarket representative contacts you.

After SecondMarket confirms you're an accredited investor you can start trading. Choose what sort of stock you want to trade, and what sorts of companies you're most interested in

See a list of securities that match your interests

Most securities are listed as static sales, but they can also be auctioned. Bidding is this simple.

SecondMarket maintains detailed fact sheets on the companies it lists. For Internet companies like Facebook, pictured here, you can see graphs of various traffic metrics over time.

Set how much stock you have for sale, and how you want to price it. As a practical matter, this is usually just an opening bid. Second Market's team works to connect buyers and sellers through old fashioned phone calls.

RightSignature allows you to authorise multi-million dollar transactions from your computer

Once you've signed off on all the legal language, you're done. The money is held in escrow while Second Market clears all the legal hurdles. The transfer will be official in 4-5 weeks. Congratulations, you own a piece of Facebook!

Investors aren't the only people making money off Facebook

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