Facebook IPO – a New Paradigm – Banks Not Relevant?

Facebook IPO – a New Paradigm – Banks Not Relevant?Recently I read where Facebook is considering an IPO. Further how the Facebook executives are telling Wall Street that the investment banks may not be relevant or for that matter important to raising the ten billion dollars they seek to raise. Hmmmmmm. Investment Bankers not relevant you ask? Yes. I have been saying that for years. And in this case very not relevant. But more about that later.

The 80’s Model is Dead

Back in the 80’s the small emerging company could raise a few million dollars and trade on NASDAQ. That was usually enough dough to get the engine started but for the most part that was never enough to keep it running strong enough to get over the hills and through the valleys while suffering the pains of growth. That model is dead. So is the model of soliciting money from American investors and getting the stock to trade on the latest foreign exchange. That is just a dead horse in all its colors.

I did however invent the model to raise money in a pre-public offering, file a Form-10 and then raise all the money the company needs in subsequent private placements. You have an advantage of to a large extent influencing the value of the stock and keeping the stock from leaking into the market in the early stages. Later it all catches up and off to the races you go trying to keep your investor relations program hot enough to fuel active and upwardly mobile trading. I did raise $16 million this way and it was quite successful as a technique. It does however take a mountain of management. In the end, more management is dedicated to running the concept than running the company however.

Can a Small Company go Public?

Well, can a small company go public? The answer is maybe. But like I mentioned before, you better have all your ducks in a row. The best model is to raise your money pre-public, then grow the company then file an IPO. And keep in mind that the company valuation is key to the process. Without a mountainous valuation the IPO will never get off the ground or if it does the stock will spiral downward and auger in. Growth must be evident and consistent. The earnings must be measureable and management must instill confidence long term for investors to stay interested. In addition you must have a high quality comprehensive investor relations program. Your required SEC reporting must also be spot on and timely. You really need to have your act together. I talk about this at length in the video below.
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Facebook Can Reach Out and Solicit 800 Million Potential Investors Anytime They Want

But back to Facebook.Ten billion dollars?A one hundred billion dollar valuation?Without bankers? The answer is very possible. How? Well think about it. Facebook has 800 million users. Some of which are investors or investor types. They can reach out and solicit those prospective investors at any time and as many times as they please. Within the rules of course. But think about. The company that provides a service they use is offering its stock directly to the subscriber. A self-underwriting by the company using the very communication/distribution product that reaches the 800 million users. Genius! Possible? Yes! And in addition the bankers would not be able to put their markup on the stock thus saving the investor some fat carved in. Now I am sure the SEC would have something to say about this and they may suddenly come up with new rules for Facebook but it still would be doable.

Self-Underwriting – the New Paradigm

The new paradigm. Bringing self-underwriting back in a unique way.And in a way not ever seen by the public before. I can see why Facebook is confident. I can see how they feel bankers may not be relevant. All I have to say is the bankers need to pay attention. Facebook could do it all by itself. And at a premium if they manage it right! But that is not the end of the story. Remember when I mentioned investor relations? Well Facebook on a long term basis can use Facebook as the focal point and information dissemination tool for the ongoing investor relations program. Wow! Facebook sells its own stock through Facebook. They manage their own investor relations program through Facebook!  An all in one self-controlled IPO and stock promotion program. They could in fact control its future without the banking community. Who would have thunk it? Me and maybe Facebook? We will soon see.

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George Lovato, Jr. is President and Principal of BH Capital Ltd., Merchant Banker, Consultant, Author and Lecturer. Happily married for over 30 years to his childhood sweetheart Gale, they live nestled in the shadows of the Sandia Mountains in Albuquerque with their six hounds.

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