Sanjay Sabnani, the CEO of online community network CrowdGather, says the Internet industry needed “a catalyst that captured the imagination of the American investment public, that the American dream is still alive in the Internet sector.”
“The good news is that you can’t really argue that it didn’t bring attention,” added Sabnani, whose company started trading on the Over the Counter Bulletin Board in the spring of 2008.
But the IPO also stirred suspicions that Facebook is overvalued, that it’s not growing fast enough and that the consumer shift from personal computers to mobile devices will hurt its growth.
“The bad news is that it wasn’t explosive,” says Sabnani. “It didn’t bring money hand-over-fist into the Internet sector.”
Steve Harrick, partner at Silicon Valley venture capital firm Institutional Venture Partners, says Facebook’s IPO _the Nasdaq glitch, especially, as well as the last-minute increase of the stock’s initial offering price, “really rattled” the confidence of retail investors, average people who are already the most skittish in any IPO.
But Harrick, who joined IVP in 2001, says his firm “is not shrinking away” from the public markets with its companies.
“I think there is still a lot of demand for great technology companies,” he says.
There are 165 companies that have filed their intention to go public, says Nick Einhorn, an analyst at Renaissance, an IPO advisory firm. This might be understated, though, if companies have started to use the confidential filing process that’s part of the Jumpstart Our Business Startups, or JOBS Act designed to help startups and small businesses grow. The number of IPOs, Einhorn added, has generally increased over the past three years, as the U.S. has emerged from the 2008 financial crisis.
While there are a lot of companies waiting for an IPO, none are Facebook’s size and caliber _ those come around once every few years. Facebook served as the grand finale for a crop of big-name Internet IPOs in the past year or so, beginning with professional networking service LinkedIn Corp., then Groupon, Zynga and Yelp. There are a handful of large start-up companies that have not signaled their intention to go public, such as Twitter, the San Francisco-based short messaging service.
One deal that doesn’t go as expected is unlikely to dissuade most of them from entering the public market, Einhorn added. There are all sorts of benefits to an IPO. Among them: raising capital, providing liquidity to existing shareholders and raising the company’s profile.
“This one had a lot of visibility and a lot of moving parts,” says Deepak Kamra, general partner at Menlo Park, Calif.-based VC firm Canaan Partners. He added that, among the venture capital lot, Facebook’s IPO had become a “huge distraction in daily life.”
“I hope Facebook is not distracted,” he says. “In terms of VC people, I have not heard of anybody pulling an offering or even thinking about it. But (the thing) to watch is whether they start moving away from Morgan Stanley as the underwriter. They don’t want to go through this again.”
For many in the technology sector, Facebook’s IPO doesn’t offer lessons or cautionary tales of any kind _because it was an anomaly. It was the highest-valued U.S. company ever to go public, and the third-highest in the world. It’s a household name and the amount of money it raised put its IPO in a class of its own. That brought a lot of attention, anticipation, and a higher-than-usual number of regular “retail” investors interested in the stock.
“If you are a $100 million or $200 million company going to go public, you’re not going to have the same scrutiny that Facebook had,” Einhorn says.
CrowdGather’s Sabnani says he’s not disappointed with Facebook’s IPO. He thinks the market is more sensible now than in the late 1990s, the height of the infamous Internet bubble. He should know. In 1999, he was the president of a publicly traded company, Venture Catalyst, which helped startups get their footing. The company is still around but it’s no longer public.