You hear that? Nothing, right? That is beautiful, delightful silence. And it will continue for the next three to five months.
That is because the residents of a certain complex in Menlo Park, California have been forced to stop running their mouths following Facebook's S-1 filing for an initial public offering yesterday. The Securities and Exchange Commission requires a "quiet period" for any company preparing to go public. It is a bit of karmic justice for the ruckus caused when a company files its S-1. Facebook will be allowed to communicate some information, but nothing that could possibly influence investors. For a company that values the free flow of information, you might think that would be a problem. For Facebook? Probably not.
What does the "quiet period" actually entail? Companies are allowed to make forward-looking statements, factual progress reports on products and updates to critical infrastructure. For example, if Facebook is down for millions of users, the company can tell people why and how they are fixing it. Communications to developers, such as is made through its developer blog, are permitted.
"Non-reporting issuers are, at any time, permitted to continue to publish factual business information that is regularly released and intended for use by persons other than in their capacity as investors or potential investors," the SEC explainer page on the quiet period states.
In plainer English, that means that investors do not get any information regarding the financial performance and critical infrastructure of a company. Communications with non-investor entities is permitted.
What does that mean for Facebook? Business as usual, more or less. Mark Zuckerberg's company has never been one to flaunt its financial progress. Facebook put off its IPO for as long as possible in "the hacker way." It wants to create products to make the platform better for more people. Being beholden to investors has never been comfortable for Zuckerberg. In an interview with 60 Minutes in 2008, Zuckerberg laid out his notion of what it means to go public.
"Really what we are focused on is not that exit strategy, it is on how do we build just the best thing possible," Zuckerberg said. "As a private company we have that advantage of not having to report to the outside world all of our financials. This is something that I think burdens a lot of public companies, having to go through and publicly state exactly where they are spending their money and where they are making money forces them to focus on things that will make the company look good, as opposed to the things that are actually important to building, long term, a great product and a great company."
Facebook finally released those financial numbers yesterday though likely not because the company wanted to but rather because the SEC would eventually force it to do so. When that happens, a company can stay private with its financials exposed or move forwards with an IPO to build capital that will help it with liquid assets that can help it grow.
Yet, Zuckerberg's reluctance to go public should make Facebook's quiet period, well, quiet.
Two large technology companies laid the groundwork in 2011 for Facebook's announcement and registration with the SEC. Each is a stark difference from the other. LinkedIn filed its S-1 papers in June 2011. It showed solid, if unspectacular numbers. LinkedIn CEO Reid Hoffman held his tongue during the quiet period as Wall Street and the tech world dissected the S-1. When LinkedIn rung the bell and started trading publicly, its shares popped to levels that not many expected. It has stayed within that range since.
On the other hand, there is Groupon. Its S-1 was probably one of the more controversial business documents to be released in 2011 more or less because of the way it calculated revenue and company culture. Unlike LinkedIn, Groupon's CEO Andrew Mason could not help but chafe at the critics that tore up his company while he was forced to take it and be quiet. A "leaked" memo to the Groupon staff from Mason surfaced several months before the company started trading, a memo that later would be investigated by the SEC for breaking the quiet period rules.
What the quiet period means to the Facebook ecosystem is that business will continue as normal. Developers will get the information they need, users will be told about platform problems and updates. Facebook will likely not announce any major new products during the quiet period but expect a barrage of new verticals and innovations once the company finally does start trading, likely in June or July.
The inverse aspect of the quiet period for a company is that everybody not forced by the SEC to be quiet will be exceptionally loud. Take a look a Techmeme's top stories for today. The top 11 stories are Facebook IPO related.
After the luster from the S-1 blows off, the news coming out of Facebook will slow to a trickle. After the madness of the last 24 hours, everyone will be able to breathe a sigh of relief.