

Goldman, Citing Strong Response, to End Facebook Solicitation - dporan
http://online.wsj.com/article/SB10001424052748703675904576064210094944044.html

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ghshephard
Folks - Facebook is having their IPO without the P before our very eyes.

If it was any company other than Goldman Sachs, who is very well politically
connected, the SEC would be shutting this down within 3-4 months and requiring
Facebook to publish their financial results.

As it is - I still give it no more than six months before Facebook is required
to start announcing results publicly.

Fascinating attempt to dodge regulatory and reporting requirements though -
using Goldman as the "Investor of Record" to keep their numbers < 500.

~~~
rgarcia
I don't know enough about the regulations that apply here, but aren't all VCs
and private equity funds subject to the same criticism? i.e. they pool private
money into non-public companies?

~~~
ghshephard
Right - the difference, of course, is that in those funds aren't usually
designed to hold shares in a single company to avoid public disclosure
regulation. The closest thing that comes to my mind is the funds that arose to
allow for ownership in BRK, once it got too expensive for shareholder to own
even a single share (BRK is over 100K) - so these funds developed to allow
people to track BRK. Of course, the company running those funds got the voting
rights. For numerous reasons, this was problematic to Warren Buffet, so he
created a tracking stock, BRK-B, that allowed individuals to have the ability
to track/exchange for shares of BRK-A (the primary stock)

If the SEC allows Goldman to get away with this - I guarantee you that we'll
see the same thing popping up for numerous other startups that don't want to
engage in public disclosure, but would like a taste of that public money.

And you just know what investment bank will be servicing those companies. :-)

Start your timers - by June 5th, the SEC will be issuing some kind of ruling
on this, and by Sept 5th, I wager Facebook will be requested to make a public
disclosure of their finances.

~~~
fleitz
I don't know of many grandma's with savings accounts that are going to be able
to put down the $2 mil for the GS FB Investment Vehicle. With a $2 million
buy-in, it's hardly 'public' money, these guys are going to be solidly in the
accredited investor space. Public disclosure laws are designed to protect
unaccredited investors being fleeced by guys like GS.

Accredited investors are what GS is going after with this vehicle, not your
grandma's savings account. (GS got that when they convinced the Fed to print
money like it was going out of style)

Personally I find the current state of regulations for public companies to be
overly onerous, and I think that the whole unaccredited investor 'protection'
is a bit of a sham considering what the SEC allows to pass for a 'public'
market where winners and losers are chosen by gov't officials with the
interests of investment banks and campaign contributors at heart. (The unions
made out pretty good when they convinced gov't of a bailout of GM & Chrysler)

You can say what you want about GS but seriously, the Fed did bail GS out with
the whole AIG fiasco.

If you knew that the Fed would bail you out every time you made a bad
investment why wouldn't you act like GS does?

If you were regulated by a gov't agency, wouldn't you want to put your guys in
those board seats?

GS is not evil, they're just highly adapted to the current regulatory
environment. What GS does is what any rational economic agent would do in the
current regulatory environment. It's the politicians and voters who need to be
called out for setting up such an easily gamed system.

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Kilimanjaro
"To get Facebook shares, clients must agree not to sell them until 2013"

Why? Do they fear everybody selling short after? If I believe in Facebook I
would keep their stock for a better growth year after year. Unless they know
something we don't, or unless they know everybody will dump a hyper inflated
stock.

You can't force me not to sell whenever I want, and that sole clause makes me
very suspicious.

~~~
rscott
Yes they can. Companies do it all the time with employee stock purchasing
programs, for instance, where you have to hold on for at least a year before
flipping it.

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jayzee
I posted this in another thread but repeating here since more relevant to this
story as well:

One of the things that goes unmentioned is that with the right feedback loops
companies can ramp up quickly like never before is true. But those same loops
are in place for the site to die down very quickly too.

In the valuation for such companies analysts often use a multiple times
revenue (or users etc). This multiple is based on the old school model that it
took time for companies to die, for competitors to emerge etc. Doubt that is
true anymore. One bad move that pisses off the community and people will leave
in droves too.

Digg anyone?

~~~
swombat
Yeah, because MySpace is totally dead right? Oh wait, it's still the 51st
largest site on the web. Takes a while to die online too, it seems.

~~~
jayzee
Death is not zero. Death is a lack of growth. Large multiple are only
justified under the assumption of a growing market. Stable/declining markets
do not have a 25x multiple.

~~~
alain94040
Not quite. Take MySpace again: if they can monetize well the traffic they have
left, then they are worth quite a bit, despite the fact that their traffic is
shrinking.

Growth in early stages is a good indicator of the potential to make money
_later_. As growth stops, it's time to actually make money from the peak you
attained. You are not dead at all then, you just can't delay any longer making
actual revenue.

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taylorbuley
"It's a blowout," said the guy playing NBA Jam on his Goldman Sachs-issued
Sega Genesis.

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lefstathiou
I think this maneuver is indicative of a broader problem related to the cost
of being public. More and more companies are doing everything they can to
avoid it. The administrative overhead, media scrutiny and regulatory costs are
simply out of control.

As more and more companies invest resources to avoid going public, we need to
look at the process and figure out why. This is similar to the tax code. The
volume of people and dollars spent to legally avoid taxes is so great that
there is clearly something fundamentally wrong with the system.

~~~
techsupporter
I'm not sure that's a good corollary. Paying taxes is something people try to
avoid because it has a cash value to do so. If the cost of avoidance (both in
money and the value of time, added together) is greater than the tax cost, it
won't be avoided.

A company, on the other hand, can try to avoid the requirements of going
public because it does not want to expose itself to the media and public
scrutiny. However, the operators of that company want to avail themselves of
the liquidity of public offerings--usually to cash out and, amusingly, pay
taxes on the resulting earnings--but don't want to expose their financials or
the details of the business. If this is the true motivation, and it seems to
be the case with many Internet-related companies wanting to be quite secret
about their goings-on, then Facebook and Goldman Sachs' proceeding in this
manner is underhanded. It doesn't (necessarily) serve as an indictment of the
system for going public, which is designed to provide protection for the
investor.

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dean
"Facebook had net income of $200 million in 2009 on revenue of $777 million."

It's interesting that it cost Facebook $577 million to run in 2009. I'd love
to see a break-down of where all that money is going. On the face of it, it
seems like an extremely wasteful amount of money to run a site like that. $1.6
million a day in operating expenses.

Yet people are still falling over themselves to invest.

~~~
Travis
What do you consider a reasonable daily operating expense for the 3rd biggest
site on the internet, that is running an extremely complex system built on
amazing and reliable infrastructure internationally?

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simon_
Doesn't the strong response demonstrate that the offering price was too low?

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InclinedPlane
Can we _finally_ get some momentum behind getting rid of Sarbones-Oxley? It's
not helping, and it seems to be making things worse.

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chailatte
Either

A.) There are really that many stupid billionnaires

B.) There are really that many stupid billionnaires who don't mind getting
burned by GS multiple times in the past, who do their due diligence in matter
of hours

C.) Goldman Sachs is breathing, a.k.a lying. (our government says corporations
are human beings, ya know)

~~~
blader
Or:

D.) Like the chorus of voices who were scoffing at MSFT's investment at $12
billion a few years back, you're not as prescient about valuations as you
think you are.

