It is official – Facebook’s S1 has been filed. This might just be the first prospectus I’ll find riveting enough to read cover to cover. Now that the suspense has subsided, I must admit, I am somewhat disappointed. Not because of the company’s financials. The numbers were in line with expectations. Not because I foresee sluggish growth. Quite the contrary, as I believe the company possesses enormous potential. I simply find it disheartening that a company, which transformed global communications and enhanced overall capital formation by igniting the private markets, would end up choosing to do the stereotypical IPO, epitomizing all that is reprehensible on Wall Street.
Frankly, I was hoping for the dramatic IPO entrance that would defy the Wall Street establishment. If there was one company that could have succeeded, Facebook would have been it.
But instead, like what has become disappointingly routine in the IPO process, a handful of the largest investment banks, which seem to underwrite every other high profile deal, will waltz Facebook onto the NYSE or NASDAQ (what’s the difference anymore?) and most likely allocate its stock to the same few favored institutional clients who receive the bulk of shares in every other coveted IPO.
While the rest of the country withers away on the sidelines watching capital flow once again from big bank to big fund manager to large cap company, the lobbyists are hard at work in Washington ensuring that this impaired system remains unchanged. Thank you, lobbyists and TARP, for making it nearly impossible to be able to distinguish between big corporation and big government.
The late Milton Friedman had affirmed that “society runs on self-interest, whether it be the self-interest of many (capitalism) or the self-interest of few (communism)”. As much as I hate to be an alarmist, unless we rebuild our capital markets, it is pretty clear where we are headed.
For those readers who are not economist groupies, try not to confuse Milton Friedman with another famous late Milton (Berle) who once quipped, “I have a brother who is afraid to go to sleep because he dreams he’s working.” Poignantly, I know a group of individuals who are afraid to go to sleep because they dream of having to support people like Milton’s brother. I call them achievers, although Socialists know them simply as sugar daddies.
In any event, while we observe yet another instance of capitalism at its worst, I find myself longing for the good ol’ days when the economy prospered simply because capital poured to the little guy. You remember that guy – the innovator, the entrepreneur, the job creator. He was pretty popular back in the 1990s.
All of this reminiscing had me imagining what Facebook’s IPO might have been like had it gone public sixteen years earlier, long before the public markets suffered irreparable damages. I quickly got hold of a “transforminator”, a device invented by my 6 year old son, specifically designed to effectuate such rare and complicated moments of conjecture. Here’s what the “transforminator” revealed:
Had Facebook gone public in 1996 (overlooking the fact that Mark Zuckerberg was only 12 years old), it would have successfully IPO’d with a market capitalization somewhere in the neighborhood of $400 million instead of today’s projected $100 billion valuation, thus allowing the investing public to reap the massive appreciation of over 24,000%. It would have been priced above the range, likely quadrupling its share price on its trading debut. The wealth that would have been created in that one day alone could have funded a slew of start-ups and may very well have inspired the next Apple. Even more importantly, the shares of this small cap company would not have floundered, like Groupon and Zynga, in a hostile market environment. Instead, it would have flourished in secondary trading. Why? Because at that time, there was an entire ecosystem of small cap brokers, market makers and analysts providing after-market support. In 1996, as opposed to only 6 underwriters, Facebook would have gone public with 106 underwriters. That would have amounted to over 100 analysts covering the stock and thousands and thousands of stock brokers placing its shares with clients on an ongoing basis. Today, that once great support system is as dead as Mel Gibson’s acting career.
Nevertheless, Facebook, it is not too late to revolutionize the capital markets and right this ship. If nothing else, demand a large allocation for your loyal user base. Use your platform and incorporate direct registration tools to provide after-market support. Continue to prosper. In the words of yet another great Milton (Hershey), “Caramels are only a fad. Chocolate is a permanent thing.” Be the chocolate, Facebook. Our children’s future is dependent on it.
Because it’s more comforting to end any article underscoring economic doom and the downfall of free enterprise with some levity, I would like to inform you that I am currently on the lookout for quotes from any and all Miltons, as they seem to be very insightful people. If you have any you’d like to share, feel free to email me.