Race of Social Network's IPOs
Just after the announcement of Facebook's investment by Goldman Sachs of $500 million for 1% of the company, and the creation by the bank of a “Special Investment Vehicle” to place another $1.5 billion worth of Facebook shares, other social networks like LinkedIn and Zynga are starting to prepare their IPO’s for this year.
LinkedIn is a professional networking site: people post their resumes, recruiters post jobs, and companies promote professional services. Their business model is mixed between paid premium accounts, advertisement and job posting charges. LinkedIn claims to have over 85 million members.
Why the rush? Goldman Sacks reported today they already received more requests for Facebook shares than the $1.5 billion they want to place, in two days! We’ll have to wait for the SEC’s response to the “Special Investment Vehicle”, which looks to me like the “Mortgage Based Securities” the banks created to break the Basel rules during the sub-prime bonanza.
For LinkedIn, Zynga and maybe Twitter is important to beat Facebook. The SEC may force Facebook to start disclosing information like public companies and then there is no reason for Zuckerberg to keep the company private. And Goldman Sacks wants an IPO soon to act as the sole Underwriter for the biggest public offering in the technology market since Google.
According to Reuter's "Some of these companies want to go public because they want to beat Facebook and others out," said one of their sources. "If Facebook went public before LinkedIn, do you think anyone would pay that much attention to LinkedIn?" You might want to surpass the beast."
If LinkedIn goes public this year it will not hurt Zuckerberg when he decides to do the same, but LinkedIn can attract a lot more investors interested in the Social Networking boom left out of the Goldman Sachs deal if they place their IPO ahead of Facebook.
Twitter has to show their hand too, So far their business model is unclear, and they need to clarify their advertising system before making a serious attempt to attract more investment, but their user volume is enormous and many others want to dig in. I hope Google buys them first.