Facebook “Friends” Goldman

The roughly $2 billion deal between Facebook and Goldman Sachs is so chock-rich of material it will surely spawn a series of longer pieces once it has settled into historical view.  To begin, it coincided with increased scrutiny by the SEC into secondary sales of private securities, particularly since one of the rumoured drivers of the deal was Facebook’s desire to avoid the public financial reporting that would have been triggered once they reached 500 shareholders (which the Goldman deal neatly side-steps through a special purpose vehicle). And it reignited a debate on both the old boys network, and how a simple middleman can be so expensive (Goldman is taking a 4% commission on money placed, and a 5% commission on profits). And then Goldman yanked the offer for all U.S. clients.

The counter arguments: that the hype is precisely a sign that FB is now peaking, that a prestigious division of Goldman itself preferred not to invest, that FB is overvalued, a cautionary reminder of previous market leader MySpace’s collapse, and even a comparison with similarly pitched Nigerian investment opportunities.  Facebook has had 15 previous financings (graphically presented). But what makes this one so interesting is that Facebook has managed to structure a third path between traditional private firms and the full public markets. It now has less incentive for an eventual IPO, yet has proven access to all the capital it could ever covet, while giving employees a chance to cash in some of their paper wealth (and presumably slip right over to Goldman’s wealth management group).

Frankly, it’s a better ending than the movie, and I’m already hoping for a deal sequel.