TEXT OF INTERVIEW
KAI RYSSDAL: You can look me up on Facebook this Monday, the 3rd of January, and that’s where we’ll start today. Not with my Facebook account, but with the news that social networking site could be worth as much as $50 billion. A $450 million chunk from Goldman Sachs and another $50 million from a Russian firm — news of which broke over the weekend — is how we get to that eye-popping total. Goldman’s also said to be lining up wealthy investors of its own to plow more money into a company that doesn’t even have a ticker symbol yet. Facebook’s still privately held and may stay that way for some time to come. For more we’ve got Marketplace’s Steve Henn on the line. Hey Steve.
STEVE HENN: Hey Kai.
RYSSDAL: So Facebook, does it even need to go public if it can raise so much money all by itself?
HENN: You know, it’s hard to see what the upside of an IPO for Facebook would be at this point. I mean, obviously right now they can raise as much money as they possibly need from places like Goldman and international -private equity funds. And they gain some advantages from remaining private. They can lure talent away from companies like Google by offering pre-IPO shares. They’re avoiding reporting requirements, which is also a big plus. And often for IPO firms, the real pressure to go public is that their founders and the early employees want that payday. They want to buy a house in the hills or a sports car, but that’s not really the case here because those employees and those founders can sell their shares already on private markets.
RYSSDAL: Right. So these are the secondary markets, not controlled by the SEC or anybody?
HENN: Yeah, that’s right.
RYSSDAL: What does Goldman Sachs get for its $450 million other than, it must be said, a chunk in a booming company?
HENN: Well, it gets two really great things for the firm. The first is it clearly gets the inside track on taking Facebook public, if and when that day comes. And that would be worth hundreds of millions of dollars in fees. And second, it also gets the chance to sell pieces of Facebook to its clients, those wealthy individuals and institutions whose money Goldman manages. And that’s invaluable, right? If my broker is Goldman and your broker is Morgan Stanley and I can buy Facebook and you can’t, you’re going to be jealous.
RYSSDAL: What about the Securities and Exchange Commission though? If Facebook has all these extra shareholders courtesy of its Goldman brokerage, doesn’t it then have to report more information about itself anyway?
HENN: Well, you’d think so right? There’s a rule that a private company can’t have more than 500 shareholders without filing public disclosures, but not surprisingly, Goldman thinks it’s found a way around that. They’re going to create a special purpose vehicle, and legally that will be the owner of all their shares. And people will be buying into that company. They won’t be buying Facebook directly. And so through this special purpose vehicle, they’ll be able to get around that SEC rule. And there’s another wrinkle here, too. So remember we were talking about secondary markets before. One of the biggest buyers of Facebook shares on those secondary markets was the other company in the deal today. It’s this Russian firm called Digital Sky Technologies. They basically have been aggressively buying shares on these markets in three companies — Facebook, Zynga and Groupon. And that gives all those early employees cash, you know they can go out and buy those sports cars. And it removes the pressure to go public and it doesn’t really increase the number of shareholders, right? So if you have 20 employees who want to sell and one buyer in Digital Sky Technologies who wants to buy, you’re actually reducing the number of shareholders you have. And they work really closely with the management of these firms to make that work.
RYSSDAL: Marketplace’s Steve Henn on the latest on the Facebook IPO numbers. He is, by the way, my Facebook friend, Steve Henn is. Steve, thanks a lot.
HENN: Take care.
RYSSDAL: That Russian company Steve is talking about owns about 10 percent of Facebook. we’ve got a list of the company’s other high-profile investors.
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