Facebook will make an initial public offering on the stock market next year has been met with plenty of press comment on the expected size of the offering ($100B, huge) but seems to have left many other people unmoved.The Wall St. Journal's report today that
It's easy to feel cynical about Facebook, a lot of people do. The news may be important for more than just holders of the stock, though. It could prove very big for the whole tech startup world and for those who enjoy the innovation that startups create. Why? Because the Facebook IPO could mean more and bigger startup acquisitions, more support for more startups and an infusion of smart money and experience into radically new tech experiments.
1. Early Facebook Employees Will Flood the Startup World With Smart Money & Experience
The best thing that came out of Web 1.0 for the next generation of startups was either the Google IPO or the PayPal Mafia. Hopefully a lot of the money that early Facebook employees take from that company's IPO will be pushed back into the web to fuel the next generation of startups. In theory at least, it should be very smart money - not dumb money at all. Not even just smart money, but experience and connections.
There's a good thread on Quora (ironically, itself a great little startup spun out by very early Facebook employees) on the "PayPal Mafia" type experience.
Venture Capitalist John Greathouse says there that there are a number of conditions that a company's early employees need in order to spawn the creation of a meaningful wave of startups after they get a big win.
"Capital from past venture successes. Pertinent experience - folks who have helped drive the bus, not gotten a ride in the back. Operators who are still hungry enough to 'do it again.' A desire to work together again.
"The people who fit the bill for spawning new startups are usually the Entrepreneurial Lieutenants, who make good money in a past venture, but not huge money."
Greathouse says there are a "fairly predictable list" of companies today that could fit the bill, including Twitter, Zynga, Google and Facebook.
Greathouse goes into more detail in a blog post he wrote on the joy of getting the band back together again. It's a good read.
"Entrepreneurs are pathological," he concludes. "Most of them simply cannot help themselves and are thus repeatedly drawn back to the startup world. They often temporarily 'check out' from the startup treadmill but many of them 'never leave'. Savvy investors and young entrepreneurs take advantage of this phenomenon by joining Serial Teams and helping them leverage their past successes to achieve new startup victories."
That's likely to be an important part of the story of the Facebook IPO.
2. Facebook Will Probably Acquire More and Bigger Startups
Facebook said last December that it would acquire 15 companies in 2011. That would be double the pace at which it acquired startups in 2010.
I've only been able to count 8 companies Facebook has acquired so far this year: WhoGlue, Friend.ly, Push Pop Press, Sofa, Daytum, Snaptu, Beluga and Rel8tion. Cool companies, but no medium sized or big ones.
Flush with cash from an IPO - perhaps Facebook will pick up the pace and the size of its acquisitions. That's good news for startups, both those acquired and others throughout the supply chain that are emboldened by the market validation of the acquisitions.
Facebook's IPO documents will detail what it plans to use the money raised for and if the company signals then that more and bigger acquisitions are an important part of its strategy, that alone will be good news for startups.
3. An Improved Economic Scenario for Startups Will Lead to More Support for All of them
"Are you going to be the next Facebook?" grandparents around the world will ask for the next several years, whenever the young people in their lives start companies at all related to computers.
Since in much of the world people assume you'd only start your own company if no one else would give you a job at theirs, a burst of enthusiasm for commonly understood tech entrepreneurialism could honestly be a good thing.
More importantly, the whole startup ecosystem will feel vindicated if the Facebook IPO is a sustained success. Apple may have surpassed Exxon "The Death Star" Mobil as the world's wealthiest company, but you're probably not going to build an Apple. You might build a Facebook, or so many boldly and thankfully naive people believe every day.
Smart money should follow pies that are getting higher, too. A lot of people will say that first Groupon's stupid business model and now Facebook's wildly overblown valuation prove that there's "a bubble."
Facebook is reportedly set to claim something like $4 billion in revenue this year though, so the decoupling of asset prices (valuations) from their underlying economic fundamentals that characterizes a bubble doesn't seem to be happening, at least not drastically, in this case.
Besides, as several observers have noted, the time to get scared is not when lots of people are cautioning that there's a bubble - it's when the money is piling up fast and no one thinks there's a bubble.