The Failure Effect?

Will Facebook forever live under the cloud of its lousy IPO?

As revelations keep coming in about bankers behaving badly, company executives making rookie errors, and institutional investors bailing at the last minute, it’s helpful to remember: we’ve seen this movie before.

Back in 2004 Google had troubles with its public offering. The pricing was in question. The number of shares was in question. The principals used a quirky auction IPO to cut out Wall Street. Then, in the middle of all this uncertainty, Playboy published an interview with founders.

This violated the “quiet period” that companies are supposed to maintain prior to a major securities transaction. The quiet period is important: the SEC doesn’t want a lot of company-formulated spin to condition the market. And lest you think their interview was just a puff-piece, the founders spoke extensively about Google’s business, including whether they intend to remain independent.

In fact, the government was so concerned that it delayed Google’s IPO, leading many to conclude that these guys just aren’t ready for the big leagues. At the time, Google’s IPO was considered one of the worst-managed offerings in history. Speculation grew that the shares would labor under a cloud for years.

What happened? The company continued to increase its share of internet search activity, “google” became a verb, they concluded deals with Apple and others to include its apps on their smart-phones, and the stock has grown six-fold. Now hardly anyone remembers Google’s Keystone Kops IPO.

Growth heals all wounds. If Facebook grows like Google, all will be forgiven. But it’s not unreasonable to wait and see.

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