By Sarah McBride and Gerry Shih
SAN FRANCISCO May 21 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
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
"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
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