A major factor in Facebook’s botched IPO in May 2012 was interest in its stock by uninformed investors who recognized the brand but didn’t know about the company’s financials, experts said this afternoon at a panel on technology IPOs at Bloomberg’s Next Big Thing Summit in Half Moon Bay.
“There are certain companies where you’re going to have unlimited unsophisticated demand, and clearly Facebook was an example of that. In those cases I’m a strong advocate of another kind of IPO,” said Lise Buyer, a principal at Class V Group, which advises companies on going public. Buyer referred specifically to the so-called Dutch auction style of initial sale that Google opted for in 2004.
Kate Mitchell, a partner at ScaleVP venture capital firm, agreed that overheated interest among non-institutional, or “retail” investors had caused an overly high initial price on Facebook stocks.
“They waited an awful long time to go public,” she said. “You don’t want to go too early, but you don’t want to go too late, especially with these consumer brands that get hyped too darn much.”
Mitchell said there were signs that the IPO would go badly when institutional investors such as fund managers and investment banks, who drive most of the U.S. market, were backing away from the deal while retail investors were not.
The amateur interest proved especially troublesome as Facebook had changes in its business outlook just weeks before its public debut. Institutional investors had better access to that information. Facebook should have opted to delay the IPO at that point, Buyer said, but acknowledged that doing so would have been difficult once the wheels were in motion.
Facebook’s failure caused a substantial bout of bearish investing, particularly in consumer-facing technology companies, even though few other companies have as high a profile when they go public, the experts said.
“It really hurt the U.S. capital markets that summer. There was a big black eye given to the U.S. capital market,” said Doug Chu, who leads the Western region of NYSE Euronext.
Consumer-facing software companies are only now beginning to march at a normal pace toward toward public offerings, Mitchell said. Because many companies file in secret in the wake of the JOBS Act, she said, she couldn’t name specific companies, but Twitter, for example, is widely expected to hold an IPO late this year or early next.
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