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Thursday, March 22, 2012

For High Tech Companies, Going Public Sucks

Does Facebook really want to go public?
When Facebook goes public this year, it will raise at least $5 billion, making it the biggest Internet IPO the world has ever seen. The day it debuts on the stock exchange, Facebook will be worth more than General Motors, the New York Times Company, and Sprint Nextel combined. The next morning, Mark Zuckerberg’s smiling face will appear on the front page of newspapers around the world. But don’t be surprised if that smile looks like the forced grin of someone dragged to the altar. Truth be told, Zuckerberg is going public not because he wants to but because SEC rules have forced his hand. Once a company takes on more than 500 shareholders—a number that Facebook easily surpasses if you include all the investors and employees who have bought or received shares over the years—it must register its stock. That means shareholders can trade it in the OTC (over the counter) markets, out of the company’s control and without its consent or cooperation. No high-profile business wants its shares to be traded in that opaque purgatory of low valuations. And so, like a hapless groom, Zuckerberg is about to become just one part of an institution much bigger than himself—a publicly listed limited-liability joint-stock company.... Going public is more difficult than it used to be—Sarbanes-Oxley regulations have made filing much more difficult, and today’s investors tend to shy away from Internet companies that don’t have a proven track record of steady profitability. That has created a catch-22: By the time a company can go public, it no longer needs the cash.
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