To illustrate, in a scenario where an accredited investor made a $1 million purchase of unregistered shares in LinkedIn on December 10, 2010 via the private equity secondary markets at $16.22 per share (the median secondary bid price by institutional investors on that date as estimated by NYPPEX), would have generated a market value of approximately $2,680,000 on May 19, 2011, assuming an after-IPO market price of $43.50 per share. This equates to a 2.68x unrealized investment multiple return over only 160 days.
Further, in a scenario where an accredited investor purchased unregistered shares in LinkedIn as recent as March 31, 2011 at $23.27 per share (the median secondary bid price by institutional investors on that date as estimated by NYPPEX), would have generated a 1.87x unrealized investment multiple return over only 49 days.
These estimated unrealized returns to secondary buyers in LinkedIn are particularly noteworthy in comparison to (a) the estimated median 1.05x investment multiple and 0.5% net IRR returns for 2003 vintage U.S. venture funds since inception through September 30, 2010 (Source: Preqin) (LinkedIn was founded in 2003) and (b) late stage U.S. venture funds that we believe typically target gross annualized returns of 20- 25%.
Although we believe that secondary buyers in LinkedIn have benefited from highly motivated investment bankers seeking to establish a track record to win future social media company IPOs, the LinkedIn IPO valuation thus far, is a good omen for secondary buyers in certain other
privately held social media companies.
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