Keeping it private

Facebook’s Mark Zuckerberg. You’ll discover he is about “openness, making things that help people connect and share what’s important to them, revolutions, information and minimalism”. He’s also a top class wealth creator because the social networking site where we post trite comments on our moments big and small, holidays good and bad, aggravations and jubilations is suddenly worth $50 billion. At least, to Goldman Sachs that forked out $450 million for a sliver of it. It could be worth much more to the high-net-worth clients , who are next in line and desperate for a piece of Facebook. And even more, to others who are not part of the velvet club, but in the snaking queue.

Zuckerberg, co-founder and the site’s biggest shareholder, could easily test the public appetite for his story and be worth a lot more billions. The 26-year-old, however, has abstained and created the new black in the financial world — staying private. And there’s every reason why.

In a world where fortunes are built on the daily whims and fancies of a mass of individual users, even if there are now 600 million of them, it’s hard to say how long the dream run will last, because it’s hard to predict when individual whims will change and when something else will catch their fancy. It’s like rating a Hollywood star, today’s hot favourite might be tomorrow’s forgotten diva — the billings just won’t stay the same.  

History offers plenty of examples. There’s the survivor like Yahoo whose share price has taken a good drubbing over the years and which sees Facebook as a greater threat today than rival Google. Then there are others which folded up like Amazon-backed Pets.com that raised $82.5 million in an IPO in February 2000, before collapsing nine months later. What seemed a good idea at the time somewhat lost its footing as better, more interesting offerings appeared.

After Goldman’s investment in Facebook came to light, several people ranging from users of the site to savvy investors have expressed outrage that this cake isn’t being sliced up and passed around the table. The selective private trading in shares has made the Securities and Exchange Commission (SEC) wonder if it should force the company to go public. Market watchers say the big worry is whether firms such as this are wrongfully using the private market to circumvent public disclosure norms.

It’s a fair worry. But look at it from Zuckerberg’s eyes. He has already committed a large dose of his personal fortune to charity, so he’s not your typical money squirrel. By keeping his company private, he can expand, innovate and spend his way to buying or building what he wants, without too many questions being asked by short-term investors who may not necessarily share his vision. All he has to do is assure existing ones that the value of their holdings will grow. So far, they have had little reason to doubt that promise.

For now, not being listed means no pressure to manage quarterly earnings or share-price volatility. Better still, anxious phone calls on vague rumours can be left unanswered. What’s more, investors who bet on Facebook to expand their fortunes are in the high- risk-taking category, and while Zuckerberg may have assured them of a return, any failure to do so will not be seen as public loss of wealth. Many new-age companies seem to feel exactly the same way. Twitter, Zynga, the gaming site, and LinkedIn, the professional networking site, have also dabbled only in the private market for shares ,which has existed for long.

The reason SEC should let Zuckerberg be, is very simple. The man has become the world’s youngest billionaire by networking, albeit, without ever shaking a hand, much less a leg. At the very least, he’s created a communication revolution. Give him a chance to spread that.

[Anjana Menon is executive editor, NDTV Profit. The views expressed here are personal]