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Facebook Makes a $5 Billion Public Play

By : J. Jennings Moss | February, 1 2012
  What started in a Harvard dorm room eight years ago is on its way to being the biggest tech IPO ever, as Facebook files paperwork to raise $5 billion by going public. It's official. Facebook is on the road to becoming a public company, having filed paperwork today with the Securities and Exchange Commission that says it wants to raise at least $5 billion. That would make it the largest initial public offering to come out of Silicon Valley, where Facebook calls home after getting its start eight years ago in a dorm room at Harvard University. With the filing of the SEC's S1 paperwork, Facebook should hit the public marketplace in May and may end up being listed on the more prestigious New York Stock Exchange rather than the tech-focused Nasdaq. The last monster tech IPO was for Google, which had a $2 billion offering in 2004. A series of other tech-related companies—LinkedIn, Groupon, and Zynga, to name a few—went public last year, but none of them capitalized on their pre-IPO promise. "It's significance is enormous," said Espen Robak, the president and founder of Pluris Valuation Advisors. Robak noted that Facebook stock has been sold to private investors on the secondary market. A year ago it was traded at about $35 a share, which has dropped to about $32 a share today. The decrease has more to do with what's happened with the other recent Internet companies that have gone public than it has with Facebook's particulars, Robak said. “What we have seen with out there with the tech offerings, including LinkedIn, is the private company data indicates a little bit of a haircut [to the share price], but not a lot,” Robak said. The SEC paperwork provided a window into Facebook's finances, although a more extensive look will come in a future filing. The world's biggest social-networking company said it had a total of 845 million users—a universe that's nearly three times the size of the U.S. population—with 483 million using the site daily. Last year, the company reported having $3.71 billion in revenue, a big jump over the $1.97 billion it rang up in 2010. Net income was listed at $1 billion, up from $606 million a year earlier. Although a $5 billion IPO is certainly a big offering, analysts initially were expecting one in the $10 billion range. Morgan Stanley is taking the lead on the case, but it's not alone. Four other banks—Goldman Sachs, Bank of America Merrill Lunch, Barclay's Capital, and JPMorgan—are joining in to underwrite the offering in a deal expected to generate as much as $500 million in fees. Beyond a nice payday for the banks, it's Facebook's founders, its first employees and the half-dozen or so venture capital firms who came on board early who really stand to profit. Mark Zuckerberg, the company's CEO and the man credited (fairly or unfairly is up to you) for the company's launch, owns 28.4 percent. The first VC firm to sign up was Accel Partners, which owns 13 percent. Other investors include Peter Thiel, the Pay Pal co-founder who is estimated to own 3 percent. For a better sense of the impact, consider Accel's investment. The Palo Alto, California VC firm invested $12.7 million in Facebook in 2005, a time when the company was valued at about $100 million. If Facebook ends up with a $100 billion valuation once it goes public—a reasonable figure, all things considered—then Accel's investment could be worth around $10 billion. "It's a huge, huge event," said Mark Cannice, a management professor at the University of San Francisco who specializes on venture capital. He described the Facebook IPO as "a class of its own." Cannice noted that the money venture capital firms, angel investors and early employees make will cause a ripple effect in the economies of the Bay Area and throughout the nation. "It's the marque Internet firm, one that goes well beyond social media. It's very meaningful for high-growth entrepreneurship and the venture capital industry," he said. J. Jennings Moss is editor of

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