Although IPO mania is commonly seen in the financial market, the global enthusiasm of Facebook IPO is rare and massive. Months before Facebook listing, people started rubbing their hands to get a slice of the pie. Facebook Pre-IPO shares were trading at $40 at www.sharepost.com. There were even funds set up and marketed as “Facebook fund”, which is in my opinion, just another financial scam.
After all, who does not know Facebook? The story of a young entrepreneur worked his way out from a computer lab and became a billionaire before 30 years old is so sexy and real, the stock is just like a new Lamborghini car which you can touch and feel. If LinkedIn can double its share price on the first of trading, why shouldn’t Facebook?
Unfortunately, the dream never came true. During the second day of trading, the shares sank 11.3% to $33.90 from its IPO price of $38. If you have bought Facebook Pre-IPO shares, you would have lost 15% in a single day.
What went wrong?
I have discussed whether you should buy IPO in my early post, let’s just talk about this IPO money-spinning machine today. Who makes money from the IPO? Most probably NOT YOU.
When LinkedIn was listed, who got the first bite? $1.6 billion for Reid Hoffman, the co-founder; $39 million for Goldman Sachs, the investment bank.
What happened to Facebook?
Goldman Sachs, the investment bank and the fund manager had planned to raise $1.09 billion selling stock in Facebook IPO, cashing out almost half their stake in the social network. According to a Bloomberg report:
Goldman Sachs created a special-purpose vehicle to bundle the holdings under one name and sell the stock to wealthy clients. That kept it from running afoul of securities rules mandating that companies with at least 500 investors meet U.S. Securities and Exchange Commission reporting requirements.
Want to get rich overnight? Stop the IPO dream and join Goldman Sachs!
Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. were sued along with other underwriters and Facebook Inc. (FB) by investors who claimed they were misled in the purchase of the social network firm’s stock.