Many people bark about that particular private company that they would love to buy, yearning for the day that it go public. Until recently, one could simply preach about the vitality of investing in such companies, and could not justify their claims. On September 9, exchangeP went live, perhaps providing these know-it-alls with the necessary ammunition to justify their claims about private companies such as Digg, Facebook, and TechCrunch. In essence, exchangeP is a fantasy stock market for private companies. It relies on what the company calls Consensus Valuations, which are based on the real-time trades of its registered users. Proponents claim that such collective wisdom assures that the valuations are realistic, but the jury is still out on whether this will be the case.
The expert panel at TechCrunch50 offered realistic and constructive criticism to the exchangeP business plan. Roelof Botha, a prominent venture capitalist, proposed that the company implement real stakes, more than the cash awards that are currently given to the site’s top traders.
“I think the key question is can you actually have cash at work here? From a consumer point of view, you can take advantage of greed and if you can make real money, people will want to use it. Secondly, people need real money to make it work for realistic valuations,” Botha opined.
ExchangeP determines the companies that will be added to the site’s pretend stock market. If a company were to go bankrupt, go public, or be acquired, exchangeP considers this a Liquidity Event. “A company undergoing a Liquidity Event will continue to trade on exchangeP for 30 days following the event, at which point exchangeP will close out all positions in the company at a price determined by exchangeP based on best available knowledge,” according to the exchangeP website.