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Tuesday, January 4, 2011

Facebook is Worth $50 Billion

In case you don't follow either, the finance and tech industries have been abuzz with the fact that Goldman Sachs has invested $500 million in Facebook and has valued it at $50 billion.
Not bad considering Yahoo offerred to buy it for $1 billion just a few years ago (which was turned down), and it was revealed that its board would have forced Zuckerberg to sell if they offered $1.1 billion. For a measly $100 million, Jerry Yang missed out on that one...

Anyway, here's an article that I thought was particularly interesting, and one that criticizes government for meddling (always fun!):

Goldman Sachs Clients Can Invest In Facebook's IPO -- But You Can't
(Business Insider)

Aren't you glad the government fixed the IPO market?

In the old days (the 1990s), small companies could sell their stock in the public markets at reasonable cost, just like big companies. This allowed smaller, more speculative companies to raise money, and it gave investors who liked to invest in smaller, more speculative companies more opportunities to consider.

In those days, investors who liked speculating on risky tech companies had plenty to choose from. Risky tech companies, meanwhile, could raise capital easily to fund their growth.

And how did both sides do? Well, sometimes these speculative bets worked out (Cisco, Amazon, Netscape, Yahoo, et al). Sometimes they didn't (hundreds of other companies that seemed like a good idea at the time). But both sides understood--or should have understood--the risks involved, and the market facilitated the free flow of capital and served both constituencies.

But then, in an effort to protect investors from fraud (which is actually not the reason most IPOs fail), the government erected huge new barriers to going public, making it prohibitively expensive for most small companies to IPO.

So now small, speculative companies generally don't IPO.

Instead, they stay private. And/or they do what Facebook just did, which was do a "private IPO" with Goldman Sachs.

What's a private IPO?

It's a mechanism in which Goldman's rich clients can invest in Facebook. But you can't.

Follow the link to read the rest!

Oh, and the picture/caption included in the article:

The government protects investors from betting their money on risky IPOs.

Good ol' business and their dislike for government interference...

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