Facebook’s Reinvention of the IPO


facebook_small.jpgADOTAS – It’s Mark Zuckerberg’s world, and we’re simply socializing in it. Investors have been chomping at the bit to get a piece of Goldman Sach’s special purpose vehicle for Facebook (following the investment bank’s $450 million injection of funds), an equity offering that will top off at $1.5 billion.

Interestingly, NYTimes Dealbook notes that Goldman’s “powerful” Capital Parters investment unit declined an offer to buy a slice of the site. The group typically get first digs — which buoys Goldman critics’ notion that the investment back put its own interests well ahead of clients — but wanted no part in the Facebook investment, partially because of the high valuation.

Indeed, some are shocked at what little corporate information Goldman has given potential investors: online traffic, advertising revenue and some other metrics, but no meat and potatoes about Facebook’s bottom line. Perhaps Goldman clients dying for a piece are blinded by Facebook’s rumored $400 million in profit off of $2 billion in revenue 2010, which increased from $200 million in income and $777 million in revenue in 2009.

But Facebook is not a typical investment — just like Zuck forced his vision of a social network on the Internet, Facebook is changing the idea of public investment in a digital technology firm. Perhaps the veteran investors are scared to jump in because Facebook has started a new game.

In arguing Facebook has no reason to go public, Felix Salmon points out in Reuters:

“The main reason for an IPO is to raise money, but Facebook has just demonstrated, in its deal with Goldman Sachs, that it’s more than capable of raising as much money as it needs privately. Any time Zuckerberg needs new equity capital, Goldman can find it for him at a very attractive valuation, no IPO required. And if Facebook is now profitable, it probably doesn’t need any more equity capital anyway.”

Bryce Roberts, cofounder of O’Reilly AlphaTech Ventures, suggests Facebook effectively re-invented the IPO — and it looks like its social media brethren, which keep sucking up venture capital and having shares traded on private exchanges, may follow suit. Who needs the NYSE when you can build special purpose investment vehicles?

So what is Facebook, then? Semi-public? Privately public? Private With Limited Access? Are we witnessing the beginning of a new type of company — and will it catch on outside of social media? And is the Securities Exchange Commission OK with this?


  1. Facebook hasn’t started a new game or ‘re-invented’ the IPO any more than Enron ‘re-invented’ accounting or the the Mortgage-backed Securities market ‘re-invented’ risk pooling. Eventually this will blow up in everyone’s face and we will all slap our foreheads and say “Right! THAT’S why we created the SEC and the concept of audited quarterly financials!” The pundits will easily change hats from cheerleaders to muckrakers as they are so accustomed to doing. And of course Goldman, playing both sides of the market as both investor and market-maker will be just fine. Meanwhile, a bunch of suckers will watch vast, vast amounts of invested capital vanish before their eyes.


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