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Comment by nchuhoai | Hacker News Reader

Just out of curiosity, why is Facebook doing this? I'm unfortunately not very knowledgeable on the field of IPOs, but aren't IPOs usually just needed to raise money? I always thought Facebook is in a position where it does not need to raise money, since it gets sufficient revenue, and being public has its own disadvantages?

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The SEC requires private companies that have more than 500 shareholders to file basically the same paperwork/disclosures that a public company has to. FB is probably nearing (or over) the 500 shareholder limit.

Since they are going to go through most of the downside involved with an IPO anyways, they might as well get some cash too.

Plus, share/option holders (employees, investors, etc) are probably clamoring for liquidity. It's great if you own a hundred million dollars of FB stock on paper - but it's even better if you have the option to sell and diversify your holdings.

Facebook has skirted this for a year now. They sold a bloc of shares to, IIRC, Goldman Sachs who runs it like a private equity fund, selling shares of the fund to as many of its rich clients as possible.

In other words, they NAT'ed the shares.

What does it mean that they "NAT'ed the shares"?

like the networking NAT (network address translation).

To facebook, goldman sachs is a single investor. However, many individual investors are part of that GS banner.

In much the same way, with a NAT, there may be many computers within an internal network (but to the outside world there is a single external IP address)

The founders and everyone else with current equity in Facebook need a liquidity event. They are all collectively sitting on $100 Billion worth of value but right now the only way for them to see anything from that value is to collect their share of the profits (if Facebook is even distributing profits as opposed to rolling them into future growth spending). The IPO gives them a chance to actually collect some cash for the value of their shares and live like the millionaires their tax returns say they should be.

How is this true anymore with secondary markets? Surely the founders and first employees are all rich by now.

There are often restrictive covenants on employee's wrt what they can sell of their vested stock when a company is private.

The largest secondary market (secondaryMarket) allows the company to list the terms of who, how and when their stock can be traded.

I believe that facebook won't allow current employees to trade on the secondary markets (though obviously there will be exceptions to that rule). I also believe that it's been years since facebook has been compensating with actual stock (since '07?), my understanding is that they take the form of restricted stock units that convert into stock once the company is public. This was to avoid breaking 500 shareholders at the time.

I doubt any of those are a primary concern - I think it's much more likely that since they broke 500 shareholders last year they've just assumed they would. With a calm, up market it's probably a better time to IPO than recent conditions. Being able to put $10B in the bank for a rainy day is nothing to sneeze at.

My understanding is that the IPO is because of the 500 shareholder rule: http://dealbook.nytimes.com/2011/01/03/facebook-and-the-500-...

The 500 shareholder rule requires the companies covered to register with the SEC, but not necessarily to publicly list their stock. They could register and stay private.

However, registration means that they have to publish almost the same information as public companies do and be subject to many of the same regulations. Since there are some benefits to going public, such as liquidity for current shareholders, few companies choose to register and stay private for very long.

I'm no expert, but I believe that by issuing common stock traded in a public exchange, employees and current common stock holders will be more easily able to sell their stocks, thereby making these people more liquid.

It could have advantages in hiring, where now, people can actually realize the value by selling their options/stock.

FB is going public because they have a lot of investors/early employees who want liquidity. I think FB is going to file for IPO the day after they hit 1 Billion "active" users, which is very likely to be soon. That would be some impressive news to piggy-back on an IPO announcement.

I would assume for the benefit of the last round of investors and employees.

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