BREAKINGVIEWS-Facebook IPO will put public markets to shame

Mon Jan 30, 2012 9:17am GMT

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Rob Cox

NEW YORK, Jan 30 (Reuters Breakingviews) - Facebook’s imminent stock sale risks putting public stock markets to shame. Investors will surely clamor for a piece of the social network. But unlike Google’s 2004 initial public offering, everyone who’s anyone has already made a killing off Mark Zuckerberg’s dorm-room project. At a $100 billion valuation, it’s hard to imagine much could remain.

The list of who gained access to Facebook’s value-creation steamroller is extensive. It’s not just Silicon Valley elite, including Sean Parker, Peter Thiel and Zynga’s Mark Pincus. The roster extends to global billionaires and, naturally, Goldman Sachs (GS.N). Even Microsoft (MSFT.O) is up big.

In one respect, that’s good. It suggests innovative entrepreneurs can access ample capital from a diversity of sources. And that may mean fewer of the likes of Pets.com tap public investors. But when the question of equality of opportunity in capitalism is being questioned like never before, Facebook shows one clear way the rich get richer.

Set aside the earliest funders. Thiel, who invested the year Google went public, gambled on a Harvard dropout with an idea. Accel Partners could easily have seen its $12.7 million investment in 2005 vanish, rather than rise to $9 billion on paper.

Later investors also took risks, though their procession looks more like the Davos caste system. At the $15 billion mark, there was Microsoft and Hong Kong billionaire Li Ka-shing. Soon after, Russian Internet smarty-pants Yuri Milner cleverly offered to buy stock from Facebook employees. Bono’s Elevation Partners swooped in with a deal that might just allow it to raise another fund.

Later came Goldman, buying nearly $2 billion of Facebook stock for private banking clients and itself at a $50 billion valuation. Facebook staff shares were available on SecondMarket, but only to accredited investors with experience investing in private firms.

The worry is that after the investing aristocracy has feasted on Facebook, there’s little left for the hoi polloi. Google’s lifespan as a private firm was shorter before debuting at $85 a share. They’re now $580 –- a valuation approaching $200 billion. For Facebook to match that performance it would need to become the world's first $700 billion company.

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CONTEXT NEWS

-- Facebook is expected to file for an initial public offering as soon as Feb. 1, the Wall Street Journal reported.

-- Reuters: Facebook to file IPO documents as soon as Wed.-WSJ [ID:nL2E8CRKI2]

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(Editing by Jeffrey Goldfarb and David Evans)

((rob.cox@thomsonreuters.com)) Keywords: BREAKINGVIEWS FACEBOOK/

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