One has to start by saying Facebook and Goldman Sachs simply and completely deserve each other. If it takes you more than a nanosecond to realize why, move along; there’s nothing for you here.
Thanks to a US$500 million cash infusion from Goldman Sachs, Facebook now enjoys a market value of close to US$50 billion without even being on the market. Goldman’s US$500 million investment gives it a stake of less than one percent in Facebook. Giving a wide berth to any initial public offering (IPO), Facebook avoids government regulation and market volatility and remains under the thumb of company co-founder and chief executive Mark Zuckerberg, as Miguel Helft, writing for the New York Times, notes.
What this does for the investor class is eliminate their ability to participate in any Facebook market offering—unless they’re a Goldman client. And those clients will have to put up a minimum of US$2 million and wouldn’t be able to sell the shares until 2013. But US regulations require a company with more than 500 investors to disclose financial results. The Goldman investment is designed specifically to avoid that regulation through so-called secondary markets.
The US Securities and Exchange Commission (SEC) is investigating private company trading like this and has Facebook, Twitter, LinkedIn, and Zynga in its sights. As Dan Gillmor, writing for Salon, notes, “Opacity is a growing issue. A thriving shadow marketplace has emerged for big startups that haven’t done IPOs, so big that the Securities and Exchange Commission is, at least in that space, looking into the wheeling and dealing. For good reason: Many if not most of the investors in these markets have no idea what the true financial picture may be of the shares they’re buying.”
As a result of Goldman’s end-run around the SEC regulations on behalf of Facebook we don’t know how much revenue Facebook generates. Or how many shareholders it has. Maybe it’s not for nothing that Facebook is banned at Goldman.
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