ConBook Continues

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So now the apologists start. In light of pending class actions and possible regulatory action against both Facebook and the underwriters, the company's PR machine has started the crank turning on the "not a failure" stories.

First, let me agree with the position of a columnist at Tech Crunch - who says that we should consider the Facebook IPO "a success." His arguments are that since the stock dropped on day 1, Facebook actually extracted more value than it was worth from investors clamoring for the glamor stock. News Flash: that means it was "over-valued." Since that post, of course, we've learned that lowered forecasts were kept secret, (I would hope which would open the company's leadership to fraud charges).

So while I agree with the intent of the post, I have a different word for it: Scam. Not only did they con investors into overpaying, they even conned the I-Banks into undercharging (about $1B worth of charges) - and now it looks like I-Banker heads may roll (Jobs, Fines, Licenses, Prison?). Does anybody that does business with this guy ever actually come out ahead?

But the point of an IPO, after all, is to raise money for the company, not the investors, right? Yes, but to say that a stock that drops 20% in its first two days because it absolutely maximized the company's coffers sounds like Silicon Valley VC-speak. It reminds me of a presentation I heard once in Palo Alto that analyzed the Dot-Bombs. One of the partners from Pets.com VC firm was speaking. He said it was disappointing that Pets shut down as they were just 1 or 2 quarters away from making profits (his words). But what I'll always remember is how he said the most important occurrence for the wealth of Silicon Valley in the "new era" was the Investment Banks taking one of the Internet companies public even though they were showing massive losses on the books. "That was a turning point," he said. Seeing as how much money was lost by non-VC investors (including the employees) in the dot-bomb era, my guess is he's laughing about this oxymoronic position all the way to his $10M San Rafael home.

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Although I didn't follow the FB IPO closely, from what I read, Z & co. played the game intelligently so that FB's interests were secured. Surely you recall many, many instances in which an IPO was laughably underpriced? That was capital lost to the issuing firm, and was the fault of the underwriters for badly misjudging it. Of course, most-favored institutional clients probably got in and out quickly and made a killing. Those firms would have been better served to do what FB did, and adjust the issuing price many times as indications that there was excess demand at a given price came in.

I do not feel bad that no one saw their shares of FB go up 50-100% on day one. That it might have been overpriced ... well, 20% isn't horribly off (these things are inherently uncertain, particularly for something of this nature), and anyone concerned about overpaying should have used a limit order rather than a market order (if that's how it works for IPOs - I haven't invested in an IPO). It's really up to the investor to do their homework and decide what to pay for an asset. Similarly, what's this about duping an I-bank into undercharging underwriting fees? Are they not sophisticated participants in this market? Can they not look out for their own interests? If not, whose fault is that? Unless FB intentionally misrepresented information about their business, I don't see how any of it is a con job.