Everybody wants a piece of Facebook. The social network has over 600 million subscribers, but more importantly, it's a destination. Most users spend a lot of time on the site, making it an advertising powerhouse, a money machine that potentially could make Google--which is essentially a way station--seem weak in comparison.
Normally, when a tech company gets to this size, it goes public. That means folks like you and me get to buy shares in the company, and participate in its success or failure, by selling our shares to people who value it either at more or less than we do.
The initial public stock offering of a fast-rising tech company is a big deal. IPOs fueled the VC funding industry in the late '90s, and made a lot of people rich. If this were 1999 right now, Facebook would already be public, driven to the exits by investors who would want a return on their funds. Facebook would use the capital raised for expansion.
But it's 2011, and Facebook isn't going public. Instead, it's raising funds and acquiring investors by participating in private markets for its shares. Initially, employees were able to exchange their shares on SecondMarket. More recently, investment bank Goldman Sachs has begun to sell pieces of its own investment in Facebook to some of its clients.
What does this mean for the future Facebook? For investors? And for other tech companies? I'm joined today by the New York Times' Miguel Helft, who is covering Facebook for the paper.
Some of our discussion points:Why is this such a big story? What do you mean, "slow-motion IPO"? What is a private placement?
How is valuation set for private shares?
Why do tech companies go public?
How are things different now from the 1999 tech IPO bubble?
Discuss the regulatory restrictions on public vs. private stock sales.
What's better about private shares than public shares? (Financial oversight? Privacy issues?) As Adam Olivari of SecondMarket said to me, "The more under the radar Facebook can stay, the better off they may be."
Effect of this private offering on other tech companies? Discuss other hot pre-public companies: LinkedIn, Demand Media, Groupon, Zynga.
What happens to private placements when the IPO market opens up again?
- Facebook To Go Public On Results (Helft, NYT)
- Facebook Deal Offers Freedom From Scrutiny (Helft, NYT)
- Goldman Sachs Staff Learning About Facebook (Cohen, All Facebook)
- How Much Is Facebook Really Worth? (Babayev, Seeking Alpha)
- Why the Fuss Over Facebook Doesn't Make It a Home Run (Zweig, WSJ)
- You Decide: Goldman's Facebook Pitch or Nigerian Email 'Opportunity' (Ovide, WSJ)
- Goldman's Shady Facebook Deal (Prins, Daily Beast)