The filing by Facebook this week for an IPO that could value the firm between $75 billion and $100 billion was good news for Morgan Stanley, which was appointed as left lead. But it is also good news for the venture capital industry – and California’s economy. The Silicon Valley Venture Capitalist Confidence Index, released on Wednesday, showed a continued decline in confidence in the fourth quarter last year, but industry participants say the announcement of the Facebook IPO might reverse that.
“Confidence in the venture capital industry is tied to being able to bring companies into public markets,” says Mark Cannice, who authors the index, and is a professor of entrepreneurship and innovation with the University of San Francisco School of Management. “Facebook, backed by venture capital, is obviously a blue-chip corporation and it remains to be seen what its impact will be on the rest of the venture capital market, but there is the expectation that such a premier offering will divert attention away from the concerns that have been weighing on the industry.”
| Trend line of Venture Capitalists' Confidence |
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| Source: Silicon Valley Venture Capitalist Confidence Index |
Those concerns have been the depressed economic outlook and a sluggish IPO market. According to the latest data from the National Venture Capital Association, the number of venture-backed IPOs in the last quarter of 2011 was down almost 70% from the same period in 2010. Last year, 52 venture-backed companies went public, representing a value of $9.9 billion.
Cannice says the Facebook IPO might create more demand or opportunities for other social media companies that have been waiting to IPO, and will encourage the start-up of other social media firms. “Facebook provides a large platform for other companies to build on,” he says, highlighting Zynga. The IPO is also likely to create many millionaires – some of whom will be supportive in seed-stage investing in tech and social media companies.
Igor Sill, managing director at Geneva Venture Management, a venture capital fund, says the IPO will be favourable for California’s economy. California has been struggling to balance its budget and was one of the worst hit states from property-price declines.
“Following Facebook’s IPO, there are going to be a lot of youthful billionaires in California looking to upgrade their homes,” says Sill. “There will also be bright, ambitious employees at Facebook spurred to set out on their own and start new ventures. The reignited confidence in venture capital will also feed into the local economy and fuel job growth.”
In the filing with the Securities and Exchange Commission, Facebook said it is seeking to raise $5 billion through its IPO, but that figure is likely to be much higher – potentially as much as $10 billion.
Goldman Sachs and JPMorgan were also named as managing the offering alongside Morgan Stanley. The deal is not expected until after March, say bankers.
