It’s that time of the year again – when we weigh in on the events of the previous twelve months and make our forecasts as well resolutions for the next twelve.
Last year I made several predictions about how the private company marketplace (PCM) would evolve in 2011, and I’m proud to gloat that most of them came true. Unfortunately, the few that did not come to fruition will prohibit me from realizing my longtime dream of making a guest appearance on Dionne Warwick’s Psychic Friends Network.
In any event, here’s the weigh-in:
To summarize, I predicted, that in 2011, technology would accelerate (duh), that LinkedIn, Groupon, Zynga and Facebook would all graduate the private markets and list in the public markets (oh so close), and that it would be difficult for these companies to sustain their massive growth rates in the more treacherous public arena (spot on). I erroneously forecasted that more stringent regulation would be introduced to oversee the private markets and that the heaps of snow in the northeast would eventually melt. To my surprise and delight, it turned out that more lax legislation made its way through Capitol Hill. And in my defense, I don’t think even Nostradamus could have foreseen a blizzard pummeling NY during the month of October.
So what’s in store for 2012? Here are my predictions:
I envision 2012 being a break-out year for the Private Company Marketplace (PCM) in terms of organization, perception and adoption – all primarily attributable to the inter-correlation of a more favorable regulatory environment, increasing disdain for conventional Wall Street and a Facebook IPO.
Organization: I foresee the PCM developing a structured framework enabling it to function more as an organized “exchange” and less like a hodgepodge of unwitting brokers fighting over spreads in mythical Facebook transactions. I believe that in 2012 we will likely see the emergence of a much needed back office infrastructure that facilitates the depositing, clearing and settlement of private stock and related transactions. I also anticipate greater transparency with the materialization of research platforms and analysts dedicated to the coverage of private company shares.
Perception: As the back office infrastructure matures, the research universe expands and settlement timing condenses, a more favorable opinion of the PCM will ensue. Private companies will begin to view the PCM as a viable marketplace to list its shares. The investing community will increasingly look to the PCM for new growth opportunities. The private markets will feel less like the Wild West and more like the genesis of NASDAQ (read Farewell, NASDAQ. The Next Wealth Generator Has Been Unleashed).
Adoption: We started witnessing the initial stages of adoption in 2011 as accredited investors and lesser known private companies began looking at the private markets with curiosity and intrigue. I feel that 2012 will be the year when next-generation private companies enthusiastically employ the PCM for controlled liquidity events, maximizing shareholder value and increasing brand awareness. I also believe that new capital will flow into the private markets as investors ditch the volatile public markets for increased stability and greater opportunities for appreciation.
As the election draws nearer, prompting the occupy movement to take center stage in the media, legislators will be further compelled to vote in favor of job creation bills such as HR 2930, HR 2940, HR 1965 and HR 2167 – all of which are indisputably supportive of a fairer marketplace more conducive to innovation and expansion. The more rampant the public loathing of Wall Street, the easier it becomes to effect legislative change and the greater the odds of Facebook achieving success with an unconventional IPO (read How Facebook’s IPO Could Transform The Capital Markets).
Now skeptics would maintain that bucking the Wall Street establishment is a recipe for failure and point to Google’s “dutch auction” IPO in 2004 as a major disappointment. I would argue that the world has changed dramatically since Google IPO’d and that today’s amenable climate perfectly positions Facebook to succeed where Google could not. During the past eight years, technology has accelerated, the growth of the Internet has exploded, social media has transformed communications and Wall Street’s reputation has been irreparably damaged.
According to Internet World Stats, world internet users grew from 785M in March 2004 to over 2B in March 2011. With Facebook’s membership base of 800M and growing, more users are now on Facebook than were on the entire World Wide Web when Google went public. Furthermore, Facebook’s users are not simply “searching”. They are deeply engaging with brands, fellow users as well as with the platform itself. In my opinion, there is no other public company more capable of influencing buying habits. With an estimated 4 times the revenue Google had when it IPO’d, Facebook is much better poised for a lucrative public offering.
I truly hope that Facebook decides to make a radical IPO entrance. For with its global dominance, I believe it has the capacity to not only revolutionize the capital markets, but to save them. Now, only if it had the power to ensure a mild winter in the Northeast.
On a final note, regarding my new year’s resolution, I promised my old college friend, Jill, that in 2012 I would make a genuine and concerted effort to stop revealing to the world her most private and embarrassing college moments, like during her semester abroad when she fractured her buttocks slipping in the bidet.
Some resolutions are just destined to fail.