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Facebook insiders sold 57% of their shares on Friday (fool.com)
76 points by huda on May 25, 2012 | hide | past | web | favorite | 40 comments

According to the S-1, most executives did not sell anything, only Zuckerberg, Breyer and Thiel, with most coming from Breyer. VCs and other pre-IPO investors sold about 10-20% of their shares.

It appears that 57% of the stock offerred in the IPO came from insiders, which is a very different thing. Pretty shoddy reporting.

"The underwriters , not Zuckerberg, are in place to judge investors' ability to absorb shares, yet it appears he was unwilling to listen."

I love how he fails to consider that the underwriters and Facebook might have different financial interests. The higher the offer price the more money Facebook makes and the less money the underwriters make.

I thought underwriters take a share of the gross proceeds...?

This is not worthy to be posted here. It's one paragraph in an blog post:

"First, Facebook insiders chose to sell a ridiculous amount of their shares relative to the last major Internet-related IPO, Google. When Google went public, insiders dumped 28% of their shares. Facebook insiders, on the other hand, sold 57% of their shares on Friday."

Comparing two data points isn't exactly rigorous argument. Maybe 28% is low for Google. What is the average? An actual article on this would be interesting. A paragraph in some dude's blog? Pointless.

And really, the correct phrasing should be: "57% of the Facebook stock being offered in the IPO is coming from insiders selling shares."

It's useful to me. The amount of words doesn't equal the quality of the content.

When my dad asks if he thinks he should buy some Facebook stock, I can tell him the IPO was more about allowing insiders to sell their stock than raise capital. Red flag

As most of us in the weeks leading to the FB IPO, I was also asked by friends and family if they should buy stock and the best answer was not to give hard yes/no's because I simply didn't know how the market will react to something this unprecedented.

However, coming from a value investment and algorithmic asset valuation background I explained the problem to them this way:

A Honda Civic is a great car at $20k? Yes.

Is a Honda Civic a good car at $90k? Probably not.

Could you find someone to buy it at that price? Probably.

Should you buy it at that point? That's what buying FB at a $110bn valuation is.

It's still a great car but I'm not going to buy it for that price.

I personally look for sourcing and well argued points when evaluating the quality of the content. This has neither, since it's just an aside in a bigger article. The submitter didn't even use the blog title which is the standard here.

This is largely true of most IPOs. Until the dot-com bubble IPOs were to be avoided by investors until the company had a few quarters to prove their business delivers consistent returns.

Smart move. My biggest lesson from the dot.com boom days was sell all vested options on the first day you are legally allowed to do so.

That's one of those micro vs. macro things, though. Individually it's a smart move. For the company as a whole it's a disaster, and something they should have planned for. Some of this is obviously because Facebook's IPO is very late, and lots of employee stock is already vested.

If you don't need a large infusion of capital, this… is the whole point of an IPO. Who else is going to sell Facebook stock if not "insiders"?

> Who else is going to sell Facebook stock if not "insiders"

You don't understand the IPO process.

Normally, it is a company with more opportunity than capital. So it creates additional shares and then sells it during the IPO. This process is just like raising capital with VCs, except the term sheet is effectively between the new investors and the company, with the SEC adding all sorts of post-its with additional conditions.

Only since bubble v1 was it seen as some sort of "achievement" for a company; An IPO is nothing more than a poor company begging for money and willing to cause dilution in order to fill its tin cup.

>You don't understand the IPO process.

>Normally, it is a company with more opportunity than capital.

Although this was of course the original rational for IPOs, this looks more and more like a historical footnote these days. Now that so many IPOs are late-stage it's hard to see them as anything other than liquidity events for founders and investors and employees.

There are two sides to the IPO: The seller and the buyer. Buyers who see "liquidity events for founders and investors and employees" as a valid reason for buying the IPO will continue buying until they don't, just like other bubbles.

>Normally, it is a company with more opportunity than capital.

Ahem. Like I said,

>If you don't need a large infusion of capital,

The other way to look at is that these employees wanted to sell their shares, to lock in their gains and diversify. They could sell them as part of the IPO, or they could wait 6 months after the lock-out. They choose to sell immediately, which means the employees at least think it's a bubble.

Or they're so sick of sitting on their shares all these years that they just want to get their money already.

It's my money and I need it now!

Look at it from the buyer side:

Employees know what deals are on the table waiting to close, and new product announcements, and all sorts of things related to the stock.

If they think the stock is going to double in the next 6 months, do you still think they'd sell? Even if they say "It's my money and I need it now!" brokers would be happy to offer a loan using the shares as collateral for any immediate money needs.

If somebody is selling, they don't think the shares are about to double, plain and simple.

You also don't have to sell all of your shares. I could cash out 25% now and keep 75% for when it doubles. Some times cash is king.

If cash is king, then 2x cash = 2x king.

Again: If you know the stock is about to double, you go get a loan against the shares. Sellers do not believe this.


  The reason lies on the technical shores of the federal securities laws. The 
  Securities Exchange Act of 1934 sets forth certain requirements for companies to 
  register their shares with the S.E.C.
  Specifically, Section 12(g) requires that a company register its securities with 
  the S.E.C. if it “has total assets exceeding $1,000,000 and a class of equity 
  security … held of record by five hundred or more … persons…”
Facebook went public because they were forced to, not because they wanted to.

I didn't get that from the article, really. They could have registered with the S.E.C. without listing on a major exchange.

That number doesn't make any sense. Facebook only sold about 16% of its shares to the public on Friday. What is the 57% referring to?

CORRECTED: Thanks to diego and smackfu below.

Facebook sold X shares for the IPO.

Y shares were created for the sale.

Z shares were sold from the insiders pool.

Obviously: X = Y + Z.

The headline says: Z = 0.57 * X

In old-fashioned days (when companies paid weird things like dividends), it was seen as profoundly bad for employees to dump this much stock during the IPO. Usually, employees who think the stock is about to double because of a revenue/earnings ramp would not be so eager to part with their shares.

Here's another source for the number: http://e.businessinsider.com/public/796352

Thanks, that's what I thought: 57% of the stock sold in the IPO came from insiders. That's very different from what the submission title says.

It says "sold 57% of THEIR shares"; I don't understand how one could read it any other way.

That's incorrect, see link below.

The "insiders"(who are these people?) selling off shares isn't that much of an issue. It's simply good investing.

The IPO was the big chance for people with equity in Facebook to finally cash out and actually make some money off of the company.

The IPO wasn't the first chance to cash out -- Facebook was being heavily traded in secondary markets before the IPO (and the lockup preceding the IPO).

The price in the secondary markets seems relevant here. Facebook's valuation was probably highest at the time of the IPO, and also the secondary markets are going to have downward price pressure because it's much harder to trade shares.

Is any of this actually bad for Facebook? Ok so lots of suddenly-very-rich people might leave - but as far as the company's concerned the IPO raised an enormous amount of money. So what if the market's perception of the company goes down? It's bad for the rest of us (and our pensions), but why should Mark care about Facebook's stock price?

Because of the market perception of Facebook. People have been speculating about how much Facebook works and how they plan on making money in the future. If majority shareholders sell their shares as soon as they can, the share price goes down and everyone's nightmare comes true.

They could've maybe waited a little, for the sake of perception.

Responsibility to the shareholders, or is that passe these days?

But Mark is the majority shareholder...

In the short term it might hurt their stock, but the long term solution is to deliver results. If they truly are focused on the long term like they say, this is just a blip like any other in the market.

Keep in mind that the 'long term' is now ruthlessly reevaluated on a quarterly basis now that they are public. The street is notoriously callous to lofty goals such as long term innovation if it doesn't result in consistent quarterly beats.

Oh absolutely. My point is that if they do deliver results, no one will care about insider selling during the IPO.

This article is misleading and uninformed.

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