What could Facebook have to hide?

Jan 14, 2011 By Jordan Reese

In a controversial move deemed either shrewd or unfair -- depending on whom you ask -- investment firm Goldman Sachs recently invested $450 million in the high-profile, world-changer Facebook. The deal provides Facebook with the cash to make more Friends, while Goldman investors get the privilege of investing, without public disclosure, as much as $1.5 billion in a private company that's made investors' mouths water for years.

Is Goldman Sachs offering an exclusive stock to the already wealthy? What is their stake? Lehigh finance professor Nandu Nayar, an expert in corporate valuation, investment banking and a former fellow with the U.S. , weighs in:

“Goldman's investment in is basically an investment open to Goldman clients who are supposedly accredited . Unlike John Q. Public, these accredited investors don't need the protection of our security laws! Consequently, such a sale is exempted from U.S. securities laws, and it would appear that the transaction is designed to raise equity and get around the SEC's reporting requirements for a public company.

“But why does Facebook want to get out of disclosure? Is there something that Facebook does not want investors to come face-to-face with? What is there to hide?”

Additional questions revolve around Goldman, says Nayar, who holds the Hans Julius Baer Chair in International Finance.

• How much is Goldman getting for this?
• How much are they getting in comparison to the job of raising money in an actual IPO?
• How much risk does Goldman really have in the deal?
• Why is it that no other investment bankers were invited to “try out” for the deal?

These are probably questions for which we are unlikely to get answers, he continues.

“But here’s another interesting take. The shares in Facebook are not tradeable—so how do investors get a return from Facebook shares? The only way for these initial investors to make money is for an actual IPO to take place down the road. I guess the investment banker who will bring out that deal will be Goldman! It reminds me of venture capital investors who invest in a start-up and then cash out in an IPO. So, what I am saying is that ultimately, Facebook will become a public company.

“The biggest question I have is: Why did Facebook not sell their shares to individuals via Facebook itself? I am sure that there are lots of users of Facebook who would love to buy into the product they love. Why waste money on an investment banker—the middleman—when they can connect directly with the buyers? I find it really ironic that Facebook, which has a ‘marketplace feature,’ does not use its own marketplace to sell itself!”

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User comments : 7

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Royale
not rated yet Jan 14, 2011
This makes me glad that my new year's resolution was to not use Facebook anymore. I haven't signed in since Dec 24th. :)
Milou
not rated yet Jan 14, 2011
"Marketable" is the key. To whom? Is it real???? Goldman is known to screw with the public. When Goldman finally brained washed the public into their manipulation ways about how great Facebook is for investing Goldman will be gone to the bank with their deposit. They have us wet with saliva and we bite into it like butter. If you make a couple bucks from the IPO. Good for you. Please take Goldman down under.....
gwrede
not rated yet Jan 14, 2011
The greedy-ass Goldman guys have manipulated FB owner(s) into believing a normal IPO is far riskier, much more work, and generally a serious pain. Then they promise up-front money so they get to pull this off.

Goldman counts on making a swoop. All they need is for FB value not to substantially crumble within 2 years.

The only thing here, that's not immediately obvious to the general public, is that the top FB guys aren't as seasoned global execs as we immediately believe just because FB is a household name.

To put it bluntly, you don't become the Sage of Omaha overnight, just because your sorry hot-dog stand happened to stumble on an oil well. Zuckerberg knows it, Goldman knows it, but you didn't.
rwinners
not rated yet Jan 14, 2011
Facebook is an interesting phenomina. I go to my home page and find NO advertising. Well almost none. Not at all like this page.
So, the value of Facebook must be hidden .. that is, in what it 'knows' rather than as a direct advertising platform.
Yet, I find it hard to see how this can be monitized. Can anyone suggest a surefire method of making gazillions on this Facebook bet?
TheQuietMan
5 / 5 (1) Jan 15, 2011
Your personal information is very valuable. Nuff said.
Mira_Musiclab
not rated yet Jan 15, 2011
Posted a link to Facebook..

Seemed oddly fitting somehow.
rwinners
not rated yet Jan 15, 2011
Ah yes... my personal information. Did I mention that I LIE!