In an effort to maintain the company’s status quo in terms of internal management, Facebook Inc. has signed a deal with Goldman Sachs Group Inc. calling for the collaboration between the two organizations for the main purpose of raising $500 million. Investor interest in the social networking website has skyrocketed, mainly due to its popularity in 2010 and a Russian Internet investment firm valuing the company at $50 billion. The deal, which is certainly subject to further investigation conducted by the Securities and Exchange Commision (SEC), has presented Goldman Sachs with the opportunity to buy into the private company, which raises an important question – when will the social network go public?
Despite the exuberance being exuded by both parties involved, regulators are not as excited about the deal. SecondMarket Inc., a company that helps pre-IPO companies find investors, stated that it received a letter from the SEC in relationship to pooled investment funds that are used to match up investors with private companies. The SEC would be interested to know whether or not Goldman’s transaction with the social media giant is to be used to get around preexisting security laws, notably one that requires increased transparency.
Though one could point to the recession that has plagued the economy for the past few years as the disease preventing high-value tech companies from going public, the main cause is the fact that they are receiving the required amount of capital to be profitable through private transactions. By remaining public, tech companies can focus their attention on internal product renovation as opposed to dealing with investors
Twitter stated that last month it had received about $200 million in funding, valuing the social network at $3.7 billion. Groupon, a daily deals site, raised $950 million. Why would these giants go public if they are so successful privately?
Lets just say the game that these organizations are playing is about to come to an end. Due to the increasing average time in which companies go public, new issues are sprouting up like weeds, particularly investment pools – should they count as one shareholder or multiple shareholders?
Facebook surpassed Google for the first time this year, having the greatest amount of traffic in the United States. A statistic that is not so favorable is the fact that Facebook makes less per user than Google, Amazon, and eBay. Increased investment will most likely help drive up profit margins, giving the company an incentive to go public.
What do you think? Is it a trend for web-based empires to remain private until the last possible moment? Do you expect Facebook to begin trading publicly soon? Would it be beneficial for the company to go public? Debate the economics in the comments below.
[Source – The Wall Street Journal]