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For the past few years, Facebook (Nasdaq: FB) CEO Mark Zuckerberg has been doing everything in his power to delay the Facebook IPO. However, with the company’s number of shareholders growing beyond 500, Facebook was facing financial reporting requirements from the SEC.
Zuckerberg astutely kept tight control of Facebook and went out of his way to avoid an early Facebook IPO. While many companies turn to the public equity markets for growth capital early on, Zuckerberg took a different path. In 2007, Facebook raised $240 million from Microsoft (Nasdaq: MSFT) and $200 million from a then unknown Russian firm named Digital Sky Technologies. And then last year, the company raised $450 million from Goldman Sachs (NYSE: GS) in a controversial stock offering that excluded U.S. investors.
In fact, according to Fortune, Facebook raised $1.3 billion in equity financing before ever going public.
In the past, companies like Facebook would IPO at a much earlier stage. By doing so, they allow individual investors the opportunity to get invested early on in their growth trajectory.
However, Zuckerberg instead chose to keep tight control of Facebook. In doing so he avoided the public equity markets. By raising capital privately, he was able to retain control and limit public reporting on the company’s progress during its early growth years.
But this also meant that most investors – except for the very wealthy – were shut out of investing in Facebook until the IPO last week. As a result, it appears that they have likely missed out on the high growth days for this company.
It’s worth noting that when Goldman Sachs completed its $450 million investment in 2011, the valuation on Facebook was $50 billion. That means that Goldman Sachs clients are reaping 100% profits in a year. Unfortunately, the average individual investor never had this same opportunity. Instead, they were shut out by Facebook’s decision to remain private longer. As a result, they missed out on any opportunity for early profits.
To read more about the Facebook IPO and the five red flags that should keep you from investing in this overpriced stock, click on the following links: