Goldman, Citing Strong Response, to End Facebook Solicitation
online.wsj.com
online.wsj.com
If it was any company other than Goldman Sachs, who is very well politically connected, the SEC would be shutting this down within 3-4 months and requiring Facebook to publish their financial results.
As it is - I still give it no more than six months before Facebook is required to start announcing results publicly.
Fascinating attempt to dodge regulatory and reporting requirements though - using Goldman as the "Investor of Record" to keep their numbers < 500.
If the SEC allows Goldman to get away with this - I guarantee you that we'll see the same thing popping up for numerous other startups that don't want to engage in public disclosure, but would like a taste of that public money.
And you just know what investment bank will be servicing those companies. :-)
Start your timers - by June 5th, the SEC will be issuing some kind of ruling on this, and by Sept 5th, I wager Facebook will be requested to make a public disclosure of their finances.
Accredited investors are what GS is going after with this vehicle, not your grandma's savings account. (GS got that when they convinced the Fed to print money like it was going out of style)
Personally I find the current state of regulations for public companies to be overly onerous, and I think that the whole unaccredited investor 'protection' is a bit of a sham considering what the SEC allows to pass for a 'public' market where winners and losers are chosen by gov't officials with the interests of investment banks and campaign contributors at heart. (The unions made out pretty good when they convinced gov't of a bailout of GM & Chrysler)
You can say what you want about GS but seriously, the Fed did bail GS out with the whole AIG fiasco.
If you knew that the Fed would bail you out every time you made a bad investment why wouldn't you act like GS does?
If you were regulated by a gov't agency, wouldn't you want to put your guys in those board seats?
GS is not evil, they're just highly adapted to the current regulatory environment. What GS does is what any rational economic agent would do in the current regulatory environment. It's the politicians and voters who need to be called out for setting up such an easily gamed system.
Why? Do they fear everybody selling short after? If I believe in Facebook I would keep their stock for a better growth year after year. Unless they know something we don't, or unless they know everybody will dump a hyper inflated stock.
You can't force me not to sell whenever I want, and that sole clause makes me very suspicious.
One of the things that goes unmentioned is that with the right feedback loops companies can ramp up quickly like never before is true. But those same loops are in place for the site to die down very quickly too.
In the valuation for such companies analysts often use a multiple times revenue (or users etc). This multiple is based on the old school model that it took time for companies to die, for competitors to emerge etc. Doubt that is true anymore. One bad move that pisses off the community and people will leave in droves too.
Digg anyone?
I have a harder time imagining people all of a sudden abandoning the place where they've stored all their photos with comments and tags, especially since they can't easily get them out.
Growth in early stages is a good indicator of the potential to make money later. As growth stops, it's time to actually make money from the peak you attained. You are not dead at all then, you just can't delay any longer making actual revenue.
This requires even more extraordinary growth rates to justify a given valuation, since future cash flows become worth that much less.
As more and more companies invest resources to avoid going public, we need to look at the process and figure out why. This is similar to the tax code. The volume of people and dollars spent to legally avoid taxes is so great that there is clearly something fundamentally wrong with the system.
A company, on the other hand, can try to avoid the requirements of going public because it does not want to expose itself to the media and public scrutiny. However, the operators of that company want to avail themselves of the liquidity of public offerings--usually to cash out and, amusingly, pay taxes on the resulting earnings--but don't want to expose their financials or the details of the business. If this is the true motivation, and it seems to be the case with many Internet-related companies wanting to be quite secret about their goings-on, then Facebook and Goldman Sachs' proceeding in this manner is underhanded. It doesn't (necessarily) serve as an indictment of the system for going public, which is designed to provide protection for the investor.
It's interesting that it cost Facebook $577 million to run in 2009. I'd love to see a break-down of where all that money is going. On the face of it, it seems like an extremely wasteful amount of money to run a site like that. $1.6 million a day in operating expenses.
Yet people are still falling over themselves to invest.
A.) There are really that many stupid billionnaires
B.) There are really that many stupid billionnaires who don't mind getting burned by GS multiple times in the past, who do their due diligence in matter of hours
C.) Goldman Sachs is breathing, a.k.a lying. (our government says corporations are human beings, ya know)
D.) Like the chorus of voices who were scoffing at MSFT's investment at $12 billion a few years back, you're not as prescient about valuations as you think you are.
It seems somewhat fitting when we imagine that Goldman Sachs' customers are the wealthy with "more money than sense," but it's not so funny when the investors turn out to be Universities, charities, pension funds, and the mutual funds trusted with your parents' retirement money...
Going back and re-reading the "Goldman's Facebook Offer" email, I can't figure out how it would get past a spam filter.