Posted on July 1, 2008
Filed Under Bubble Watch |

Attention Wal-Mart shoppers: Facebook stock is now on sale. If you previously wanted to buy shares of the hottest social networking startup in the world but the $15 billion valuation scared you off, you’re in luck. On aisle 3, existing Facebook investors have rolled back pricing on Facebook stock to bargain basement prices - shares are now available at valuations as low as $3 billion!

In a sign that some Facebook investors are itching to sell while Facebook still has value (or before the financial markets implode), it is being reported that blocks of Facebook stock are being shopped around.

TechCrunch that a wealth manager named Bill Dagley has been assisting one entity (likely an early Facebook investor or employee) in an attempt to sell $30 million worth of its shares at a $3-$4 billion valuation.

Silicon Alley Insider with a report that two of its sources (one an anonymous commenter) are indicating that similar inquiries have been making the rounds, likely at the behest of multiple Facebook shareholders.

Apparently there have not yet been any takers for such rollback deals.

If you live in the rosy world of Web 2.0, that is curious. After all, Facebook its better-endowed competitor in terms of overall traffic and the company was supposed to usher in a new era of advertising. To some, it’s building the operating system of the future (and making developers in the process). Forrester’s social media cheerleader Charlene Li went so far as to state that Facebook is the “new computing platform for this new age of computing.”

Facebook has resisted billion-dollar acquisition offers and leader Mark Zuckerberg and investor Peter Thiel that the company is best suited to remain independent and go public sometime in 2009 and 2010.

So why would anybody want to sell their Facebook stock before Zuckerberg rings the opening bell on the NASDAQ the morning POKE makes its public debut?

The answer is quite simple: some people who hold Facebook stock still believe in reality.

Facebook’s monetization problems have become glaringly obvious, its growing bloat and rising costs are hard to hide and the deteriorating financial markets certainly aren’t crying out for a Facebook IPO in 2009 or 2010.

In other words, Facebook’s appeal is wearing off a bit and for early employees and investors, the concern is clearly that the company’s stock has already “peaked” in value. There’s just one problem - that stock has peaked before the company has even gone public.

This, of course, wasn’t entirely unpredictable. After turning down billion-dollar acquisition offers and instead negotiating investments from entities willing to give it an 11-figure valuation, it was more-than-likely that observers would start questioning the company’s value, especially in light of its monetization shortcomings.

With Zuckerberg permitted to retain significant control over the company, Facebook employees and shareholders find that their investments in the company are subject to the whims of an experienced and ostensibly idealistic 24 year-old CEO.

Needless to say, I think some Facebook investors will be questioning the sensibility of the control they’ve allowed Zuckerberg to retain (if they aren’t already). While it may be “cute” to have an eccentric and quirky twenty-something CEO running Silicon Valley’s hottest startup, when billions of dollars are potentially at stake but your twenty-something CEO decides it’s more important to go on a “Vision Quest,” things become a lot less “cute.”

I think perhaps the greatest problem Facebook has is that some of the people at the top of the company - namely Zuckerberg - don’t quite grasp that time is probably not on their side. They seem to believe that Facebook can continue along its current path indefinitely without having to deal with changing perceptions about their business or macroeconomic factors.

Yet perceptions are changing. I see few who actually believe Facebook is worth $15 billion but more importantly, people are questioning what the company’s future realistically entails.

In addition, the overall economy has turned on Facebook and if I was a Facebook shareholder, the prospect of a 2009 or 2010 IPO would not excite me.

Some are predicting that the United States could be facing a long-term bear market, if not a severe recession or depression.

Last quarter, not a single VC-backed startup went public. the first time this happened since 1978.

Interestingly, the fact that some Facebook shareholders are looking to unload their stock dovetails nicely with the questions some VCs are starting to ask themselves now that the elusive IPO seems to be a growing trend - not just a byproduct of a down market.

Fred Wilson of Union Square Ventures suggests that the United States needs a friendlier regulatory environment but as Glen Kelman responds:

Fred, regulations aside, how many VC-funded companies have a legitimate shot at being long-standing, independent businesses? How many entrepreneurs do you meet that even aspire to to build such companies?

Maybe Sarbanes-Oxley and other regulations have raised the cost of being public to the point where a business now needs to generate $150M rather than $75M in annual revenues before an IPO is worthwhile — but to me the biggest shift over the past decade in high-tech has just been in lower expectations among entrepreneurs and investors alike.

Blaming SOXA for the IPO drought just seems a little like a cop-out. A lot of startups these days are like very well-paid contract developers, deciding from day one to build an add-on feature to some other company’s products. This can be a very lucrative decision, but it’s hard to characterize such deliberation as a casualty of SOXA. Whoever builds the next Google or Cisco, Apple or eBay is going to have bigger ambitions than that, and if they succeed, they’re going to take it public, SOXA or no SOXA.

As it relates to Facebook, it’s worth asking the question: does Facebook look like it has the potential to be a long-standing, independent business? Does its profile resemble that of a Google or eBay? Or it a “cool” startup trying to convince itself (and the world) that it’s more than it really is?

I would argue that it’s the latter, and by that measurement, I think the pricing on its stock is going to have to be rolled back a lot more before savvy Wal-Mart shoppers start rushing to aisle 3 to buy.

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5 Responses to “Rollback Pricing Now Available on Facebook Stock”

  1. antje wilsch on July 1st, 2008 12:36 pm

    Love the image….

  2. VCs Respond to The Venture Capital Crisis : The Drama 2.0 Show on July 3rd, 2008 10:21 am

    […] it stands now, some Facebook shareholders who are trying to dump their shares at a discount to recently-reported valuations apparently aren’t […]

  3. Brian on July 6th, 2008 8:45 am

    I think Facebook resisting offers which tremendously overvalue their product is a brilliant strategy. Hold the line boys!

    - Jerry Yang

  4. Web 2.0 Summit Runs Out of Web 2.0 Hype : The Drama 2.0 Show on July 7th, 2008 7:10 pm

    […] profits to the fact that some shareholders of the hottest still-independent Web 2.0 startup are trying to dump their stock, all indications are that the kool aid is really starting to wear off quite […]

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    […] are missing in action, most stock options are worthless and/or illiquid and venture capitalists have realized that this time, there aren’t a whole lot of greater […]

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