After Goldman investment, Facebook may have no option but to go public
“It’s a lot easier to go public than to be public," observed veteran technology investor Frank Quattrone last year.business Updated: Jan 05, 2011 22:31 IST
“It’s a lot easier to go public than to be public," observed veteran technology investor Frank Quattrone last year. That insight might prove doubly prophetic for Facebook, which is under fresh scrutiny about when it might take — or be forced to take — the social networking company public following a fresh $500-million round of investment led by Goldman Sachs. That has valued Facebook at $50 billion.
Joined by the Russian firm Digital Sky, which put $50 million into the deal, Goldman has structured it as a new investment product.
Clients can buy a chunk of Facebook equity by investing at least $2 million, and have to agree not to sell shares until 2013 and not to trade in secondary stock markets.
It is a deal that has prompted scrutiny of the rules on US initial public offerings. The Securities and Exchange Commission stipulates that firms with more than 499 shareholders must go public, though Facebook won an exemption from this ruling in 2008 by saying most of its shareholders were staff. Outside Facebook, though, nobody knows for sure how many investors it has.
That has not stopped analysts poring over SEC rules saying they specifically state that organisations cannot create entities — or “special purpose vehicles" —to circumvent the 499-shareholder threshold. This prompted speculation that the SEC will eventually demand Facebook registers as a public company, four months after the end of its fiscal year — May 2012 — a situation similar to that forced on to Google in 2004.
Already the SEC is asking questions about hyperactive Facebook activity on secondary markets, which facilitate trading in shares of unlisted companies. These markets had already seen the use of special purpose vehicles, allowing smaller investors to club together to buy Facebook stock. Trading accelerated in November after Facebook’s largest venture capital investor, Accel Partners, sold about a fifth of its 10% stake to give Facebook a reported valuation of $35 billion.
One secondary stock exchange, SecondMarket, confirmed this week that it had received a letter of enquiry from the SEC.
“These investors won’t be throwing their money in on trust alone,” said Anthony Miller, of analysts Tech Market View, who said the Goldman investment had echoes of the dotcom boom.