CORRECTED-Silicon Valley takes Facebook fizzle in stride
By Sarah McBride and Gerry Shih
SAN FRANCISCO May 21 (Reuters) - Facebook's lackluster initial public offering performance is a black eye for many on Wall Street and could have ramifications for similar upcoming deals such as an offering by Twitter, but venture capitalists in Silicon Valley are keen to shrug off Facebook's stumble - at least for now.
Any social networking companies planning IPOs might now be thinking twice, although the biggest companies currently aiming to tap public markets are enterprise-focused rather than consumer-focused, such as online-security company Palo Alto Networks, which has had IPO documents on file with the Securities and Exchange Commission since April.
"Whether (Facebook) is worth $95 billion or $100 billion, it's immaterial," said Jeremy Liew of Lightspeed Venture Partners, who has backed daily-deal company LivingSocial and others. Either way, he said, it is a lot of cash.
"I personally don't think it's going to hurt the tech IPO market hardly at all," said Dixon Doll of DCM.
It would not be the first time that Silicon Valley has played down setbacks. During the dotcom bust of 2000, some investors insisted for months that poor market conditions were temporary, even though they dragged on for years.
The biggest impact of an IPO that does not meet expectations, venture capitalists say, would normally be on valuations of similar companies, which would have less hope of going public. In this case, the private market value of fast-growing social-media companies, an area in which many people believe a bubble is emerging, would appear to be an area of concern.
However, many emerging players in social networking have raised money very recently. Online bulletin board site Pinterest raised money last week at a $1.5 billion valuation; question-and-answer site Quora raised $50 million recently.
The IPO window doesn't close in a day, venture capitalists argue. "I would not jump to premature conclusions," said Roelof Botha at Sequoia Capital.
Venture capitalists believe that any damping effect from Facebook will be trumped by the effects of the Jobs Act, signed into law in April, that effectively makes it much easier for companies to hold IPOs through provisions such as confidentiality up until the roadshow.
"There's a lot of other good stuff in there that is causing everybody in the entrepreneurial community to be much more optimistic and willing to consider going public," said Doll.
The biggest impact could be on companies that are considering squeezing the maximum possible value out of the public markets and not leaving a penny on the table, as Facebook did.
"Bankers are going to use this example as a reminder to companies going forward that they shouldn't get too aggressive on pricing," said Tom Taulli, an independent IPO expert. "It's not going to be 'the sky's the limit' anymore."
The argument will carry more weight when considered alongside companies such as Pandora Media Inc and Zynga Inc, prominent IPOs from last year that had strong openings but went on to trade well below their IPO prices.
That thinking could add pressure to Twitter, the microblogging service that many investors believe could try for an IPO next year or early in 2014. In its last funding round last year, it was valued at $8 billion, despite having little revenue.
The public market's tepid reaction to Facebook has also raised questions about SecondMarket and SharesPost, two loosely regulated secondary trading exchanges that have marketed themselves as credible platforms for buyers and sellers to trade shares of private companies before they go public.
In the final days before trading halted in late March, deals for Facebook shares on SecondMarket approached the mid $40s, while SharesPost closed transactions at over $44 per share.
Aishwarya Iyer, a spokeswoman for SecondMarket, declined to comment Monday on Facebook's stock performance but maintained that trades for Facebook on SecondMarket accurately reflected its value on the public market.
The last monthly weighted average was $42.72, and Facebook's trading opened at $42.05 on Friday, Iyer said. "That difference of 1 percent showed how we're a very good indicator."
Doll puts Facebook's stumble in perspective by pointing out that of the world's five most transformative technology companies - which he considers online retailer Amazon.com Inc , hardware company Apple Inc, Chinese search engine Baidu Inc, Facebook, and search engine Google Inc - only Google has never closed below its offering price.
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