“Coulda, Woulda, Shoulda” – Lessons Learned from Facebook’s IPO

Posted on May 24, 2012 | Leave a comment

What “coulda” ignited a desperately needed thriving IPO market, Facebook’s IPO is going down in the history books as a cluster of mishaps complete with a series of investigations and lawsuits looming in the distance.

In case there was even a shred of doubt left, the Facebook IPO validates just how dysfunctional the public markets have become. Not to mention greed infested and corrupt. Was it really necessary for Morgan Stanley to inform its institutional clients during Facebook’s road show that it was cutting its estimates while simultaneously raising the price and size of the offering?

Does anyone sympathize with the weeping hedge fund manager who lost $100M by trying to flip FB on the open?  This same hedge fund “woulda” quintupled its money had its manager read Lou Kerner’s Facebook report on SecondShares in March 2010 that placed a $100B price target on Facebook when it was valued at a mere $19B.

There were plenty of investors who profited handsomely off Facebook. They just weren’t able to do it trading in the treacherous public markets. The fact is the appreciation was realized by investing in the PRIVATE markets. I guess I really need to show the following chart yet again.

Instead of flipping what was touted to be a hot IPO, private market investors made money the old fashion way – by buying and holding. Oh the torture, of having to actually keep a stock for more than 30 seconds. Here’s the truth: trading stocks does not create jobs, fuel innovation or foster economic expansion. To the detriment of America’s economy, its public markets have become one giant breeding ground of traders.  

Weeks after the JP Morgan derivative fiasco, the last thing Wall Street needed was another black eye.  But POW! It saddens me to say so, but it was well deserved. Here’s a suggestion: stop creating cataclysmic derivative products, misleading public investors and risking other people’s money. Remember once upon a time, when as a principal underwriter, you took chances bringing young emerging growth companies public – some of which went on to create enormous wealth and even change the world? Perhaps rather than place new issues in the hands of your biggest institutional clients, you can allocate them across an issuer’s greatest supporters – its clients, its customers, its users and its partners.

I am not one to say, “I told you so” but back in December, I pleaded with Facebook to buck the Wall Street establishment and self-underwrite. (Read “How Facebook’s IPO Could Transform the Capital Markets”). It “shoulda” listened – especially after Goldman Sachs completely bungled its private placement in 2011. Facebook “shoulda” utilized a Dutch Auction model and employed a method called Direct Registration where it would have been able to sell its shares directly to its loyal user-base in a much more equitable manner. Facebook’s IPO “shoulda” gone down in history as the catalyst that transformed the capital markets into a level playing field and led us into a new era of the “social stock market” comprised of long-term investors deeply committed to an issuer’s brand.

Twitter, I hope you are paying attention.

In all sincerity, I removed “Coulda, Woulda and Shoulda” from my vocabulary years ago. Rather than harp on what might have been, I prefer to use the mistakes of the past to create a better tomorrow.

As such, Facebook’s IPO should not be viewed as a monumental regret but rather as a “wake-up call” for the nation. This is undoubtedly a “market structure” problem, not a regulatory one. We simply cannot allow high frequency traders and those who are “too big to fail” to run amok with our capital markets. While there are some who will inevitably use Facebook’s IPO debacle to undermine key components of the JOB Act, they will be doing this country a grave disservice. We need to inspire entrepreneurship, not deter it. If they are so inclined to tighten regulation then appropriate it towards those who are destroying the capital markets with useless derivative products and excessive greed. Whatever you do, please do not strangle the emerging businesses who are merely trying to restore economic prosperity through innovation and job creation.

222 days, 5 hours, 54 minutes, 32 seconds until the democratization of the U.S. capital markets.

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The Wrong Day to Quit Sniffing Glue or Make Your IPO Debut

Posted on May 21, 2012 | 1 Comment

Some call it a cultural phenomenon. Others label it a colossal waste of time. No matter the sentiment, all attention was on Facebook’s IPO entrance on Friday. Well, except for NASDAQ, who was too focused on repairing its malfunctioning technology, oh, and the European Union, who was busy worrying about its looming financial collapse.

Instead of skyrocketing, as was widely predicted among analysts on the Street, Facebook closed up a mere $0.23 cents, not even gaining 1%. News circulated during the day that even Facebook’s bankers had to jump in and support the stock from breaking its offering price. A far cry from LinkedIn’s IPO entrance, almost exactly one year ago, which nearly tripled its offering price during its first trading day.

The most anticipated IPO of the decade and largest technology offering in history had a less than stellar IPO debut. Yikes. What does this say about America’s capital markets? What does this mean for its economic future?

If we’ve learned anything today, it’s that timing is everything and no one, not even Wall Street’s finest, can predict the ideal day to go public. Sometimes you just “pick the wrong day to quit amphetamines“. But, bankers can sometimes price an offering correctly. And this was one of those times. Had Facebook’s stock price shot through the roof, Friday’s headlines would have read something like, “Once Again Wall Street Bankers Underprice a Deal & Screw the Issuer”.

Facebook’s underwriters should be commended. But I do not want to give them too much praise for fear it will go to their heads and result in the creation of yet another destructive derivatives product. “There’s no reason to become alarmed, and we hope you’ll enjoy the rest of your flight. By the way, is there anyone on board who knows how to fly a plane?” Sorry – once you start quoting the movie, “Airplane”, it is almost impossible to stop.

Facebook’s lackluster IPO performance also affirmed what we all know but most don’t like to confront – the public markets are significantly broken. It is challenging for companies to thrive in a trader-centric marketplace where fundamentals are rendered practically meaningless and company stock prices are at the mercy of extraneous events. Last week, Europe sneezed and Facebook caught the flu.

Unfortunately for Facebook, not too many traders came to the realization that Europe’s bleak financial future and rising unemployment actually benefit Facebook’s business. Look how many more jobless people will now have time for Facebooking. Does anyone see the irony here?

Facebook, say goodbye to the autonomy of the private markets. Now, instead of being valued on your own merits, you’ll be assessed based on the accomplishments and failures of those who have nothing to do with you, subject to the second-by-second mood swings of those judging you. Welcome to public market hell where you will now be viewed as a ticker symbol as opposed to the global innovator you are.

Don’t worry, “FB”, many considered the IPO of “GOOG” to have been a great disappointment too. Contrary to “GOOG”, at least you were not forced to slash the price and size of your offering. And remember Webvan’s hot IPO? Its stock price more than doubled during its first trading day. Perspective.

So just where was Facebook’s aftermarket love on Friday? This leads me to the final and most important lesson of the day. Even the most grandiose of companies have trouble thriving in a marketplace that lacks the aftermarket support derived from long-term investors who are more interested in funding companies rather than trading tickers. These long-term investors are a company’s clients, its customers, its users, its partners and its supporters. In Facebook’s case, they are the 900 million across the globe sharing updates, photos and videos every day. If each user bought just one share of FB, it would equate to $34.2 billion in pent up demand.

I don’t doubt that Facebook will ultimately achieve success in the public markets. It is one of maybe a handful of companies on the planet, including AAPL and GOOG, who can provide its own aftermarket support by harnessing the crowd. According to Gene Massey, CEO of MediaShares and leading expert in Direct Registration methods, “Once Facebook has been public for 12 months, it can offer a direct stock purchase option to its massive user base. By doing so, it will not only gain stock support, but Facebook will also add valuable shareholder demographics to its existing database enabling it to become the world’s most powerful marketing and fulfillment company in history.”

Unfortunately, the vast majority of companies entering the treacherous public markets do not have a support group of 900 million. Unless something is done to fix the aftermarket deficit, more and more publicly traded companies will find themselves dying a slow painful death. This will only result in additional long-term investors fleeing the public markets in search of greater stock appreciation.

The fact is the mass exodus has already begun. The fastest growing companies no longer reside on NASDAQ. They are found in the rapidly expanding marketplace for private company stock (PCM).  

Facebook has inspired a new generation of social businesses poised to capitalize off its extraordinary media platform. Many of these micro and small cap companies are already enjoying spectacular revenue growth. Historically, most of these companies would have been public at this point in their life cycle, creating wealth for public market investors. However, it makes no fiscal sense for these companies to be public today.  

These private companies are all thriving, in part, because their investors consist of long-term shareholders who believe in their products, their businesses and their visions. Don’t all companies deserve the right to attract investors whose interests are more aligned with their own? Shouldn’t all investors have the opportunity to invest prior to a company’s greatest growth spurt? Shouldn’t all investors have the freedom to invest their own money as they see fit?

224 days, 16 hours, 38 minutes, 16 seconds until the democratization of the US capital markets.

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Is The New York Times Trying to Socialize Wall Street?

Posted on April 4, 2012 | 6 Comments

The New York Times came out with an article yesterday that caused me to seriously question the publication’s true allegiance. The piece, written by Andrew Ross Sorkin and titled, “JOBS Act Jeopardizes Safety Net For Investors”, uses Groupon’s current woes as an excuse to denounce the overwhelmingly bipartisan jobs bill just days before Obama is expected to sign it into law.

His title alone makes me cringe. Since when does investing come with safety nets? Investing involves risk. In fact, the entire concept of investing is weighing risk versus reward. Mr. Sorkin, do you even comprehend the magnitude of what your article intimated? You are basically insinuating that it should be the Government’s responsibility to assure investment returns. Somewhere, Ayn Rand is rolling over in her grave.

Let’s get one thing straight, I am all for investor protections. But unlike you, Mr. Sorkin, I also support a capital markets system that provides fairness to ALL investors, not just to the 1%. I further endorse a bill that allows for investor protections without sacrificing our nation’s greatest innovators.   For far too long our capital markets have been hijacked by PIPE funds, program traders and a handful of supersized investment banking and institutional firms at the expense of our small businesses. The JOBS Act democratizes our capital markets, brings equality to retail investors as well as emerging companies, and most importantly, it hands the capital markets back to the 99%.

The “Crowdfunding” component of the bill that you condemn actually levels the investment playing field by permitting smaller investors to invest prior to a company’s greatest growth spurt as opposed to having to wait until its IPO when the majority of the appreciation had long passed. Why do you take issue with the 99% being afforded the same opportunities to grow their money as the 1%?

Since you obviously lack an understanding of crowdfunding, allow me to educate you. The Crowdfunding Marketplace could not be more distinct from the unbalanced conventional markets you outwardly shield from crucial regulatory reform.

Unlike most public market investors, crowdfund investors are long term, benevolent shareholders who invest in a company, not because they have a “get rich quick” mentality, but because they truly appreciate a company’s business, its mission, its value to the community and its potential impact on society. In fact, crowdfunders value a company’s business so much that they are currently funding projects without even receiving an equity stake. Imagine a PIPE investor forgoing his equity because his true motive is to see the company succeed? I can’t even envision him not securing his return by demanding a steep discount plus a warrant kicker for “risking” his capital. 

Crowdfunding allows businesses to obtain shareholders whose interests are more aligned with their own. This alliance gives companies a greater chance to succeed. If crowdfunding achieves nothing else but altering investing behaviors and making it “chic” to be a long term shareholder again, it will go a long way towards improving our capital markets, our economic future and even advancing society as a whole.

Finally, Mr. Sorkin, please understand that if you regulate the risk out of our capital markets, you will be regulating our nation right out of innovation, growth, global competitiveness and yes, job creation. Not every company will succeed. In fact, many will not. But our capital markets were built on the back of many failures as well as successes. Had it not been for those failures, there might never have been an Apple, Intel, Microsoft, Google or a Facebook and you would have written your irresponsible propaganda cloaked as journalism with a fountain pen instead of on a keyboard.

The New York Times needs to stop decapitalizing the markets under the pretense of investor fairness when their actions will only lead to greater injustice.  If it truly wants this nation to prosper, it will put an end to encouraging mediocrity and dependency through careless rhetoric of unwarranted safety nets.

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The JOBS Act – It’s not Just a Bill, It is Our Children’s Future

Posted on March 23, 2012 | 1 Comment

“We The People” applaud our Senate for overcoming partisanship and passing a bill that will help get our economy moving again. The JOBS Act which had passed the House by an overwhelming bipartisan majority a few weeks ago passed the Senate yesterday by a vote of 73-26, albeit with a number of amendments that would bring the bill back to a House vote. I believe the House will pass the amended version expeditiously.

Recently, there has been a lot of heated rhetoric about this legislation. Unfortunately, most of the discourse has been stemming from those who couldn’t make a distinction between capital markets and CAPTIAL LETTERS.

During my 20 year career on Wall Street I had the opportunity to experience our capital markets at their best and at their very worst. In the 1990’s I had the privilege of being part of the ecosystem that took some of today’s most recognizable technology names public. I watched syndicates of small broker dealers unite to fund innovation and pool resources in order to support aftermarket trading. I experienced the results of those efforts as the Internet revolutionized the planet and changed the fabric of our everyday lives. I witnessed NASDAQ’s extraordinary rise and fall from a communal Quotron in a retail brokerage branch to a PC in my living room to a PDA standing in the middle of a third world country.

Sadly, I also observed the rapid decline of the capital markets as they were seized by program traders, PIPE funds and daytraders more interested in funding tickers than investing in businesses. To the detriment of innovation and entrepreneurship, those vital investment banking boutiques were driven out of business or gobbled up by big conglomerates. For nearly a decade now, our public markets have been monopolized by a handful of mammoth investment banking firms competing to underwrite the limited supply of large cap companies just so they can line their pockets by placing that stock in the accounts of their largest and most favored institutional clients. It was this practice, encouraged by antiquated regulation, that led to the demise of America’s economy.

The passage of The JOBS Act will put an end to this “circle of big” and once again allow capital to flow to our innovators, our entrepreneurs, our job creators! Additionally, it will level the investing playing field by permitting smaller investors to invest prior to a company’s greatest growth spurt instead of having to wait until the IPO when the majority of the appreciation had already passed. Imagine “the 99%” investing alongside “the 1%”and being afforded the same opportunities to build wealth? It’s easy if you try. Soon the world will live as one. Kumbaya.

This bill not only opens so many new doors to capital, but it also facilitates the procedures by which that capital can be obtained. Embedded in this legislation is Rep. Patrick McHenry’s “CrowdFunding” bill that finally brings our markets to the 21st century by allowing emerging private companies to raise capital via social media. This legislation also does away with other obsolete regulations such as the general solicitation and advertising ban for unregistered securities and the “500 shareholder rule”. All of these changes will enable companies to stay private longer and thrive in the private markets as opposed to dying a slow small-cap death in the treacherous public markets.

Times are changing. Technology is advancing. It is inevitable that our capital markets will be evolving. This is not just piece of legislation – this is progress.

Skeptics say that this bill undermines SEC oversight and would lead to fraud. Isn’t it funny how naysayers are quick to offer criticism without providing suggestions for improvement. If only it were as easy to form an idea as it is to critique one.

Is the bill flawless? No. But anything is better than the status quo, and in concert, our Wall Street veterans, business leaders, entrepreneurs, legislators & regulators can perfect it. I implore members of the SEC to join us at an upcoming TSL capital creation event where thought leaders coalesce and endeavor to repair the damaged capital markets.

Collectively we can design the proper regulatory framework for the private markets. Together we can rebuild a capital markets that assures investor protection while enhancing capital formation. With our efforts unified, the U.S. capital markets will once again become the envy of the world.

We owe it to our children to leave them a prosperous America.

Sincerely,

A Mom on Wall Street

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Cousin Cara and Facebook’s IPO

Posted on February 21, 2012 | 3 Comments

Since Facebook’s long anticipated S1 was filed on February 1st, pundits have been coming out in droves weighing in on everything from Facebook’s revenue growth to the number of hooded sweatshirts hanging in Zuckerberg’s closet. I haven’t heard this many opinions being expressed since my daughter learned how to speak.  

I’ve read everything from, “Undervalued” to “Facebook will save California’s economy and resuscitate the IPO market” to “Facebook’s IPO marks the end of private markets” to “Overhyped and Overvalued”. The viewpoints are limitless; unfortunately the same cannot be said about opportunity. I thought it was time to step out and make sense of all of this mayhem before too many heads explode and too many opportunities are lost.

Firstly, I find it amusing that the more the skeptics cry, “bubble” and attempt to remind us of pets.com, the higher the price Facebook’s shares climb in the private markets. Overvalued? Really? Did I miss something? Have stocks suddenly started trading on fundamentals again?  Perhaps I was too busy updating my Facebook status to notice the widespread return to the old fashion investment principles of investing in businesses rather than tickers.

Like nearly every publicly-traded company, Facebook’s fundamentals are inconsequential. I can’t understand why analysts are even bothering to waste their time dissecting every last number in the filing (starting with the 1 in the S1) when they should be paying more attention to the big picture.

Here’s the big picture…

Anyone who thinks Facebook is overvalued must not have heard of the “Cousin Cara Factor”, named after my cousin, Cara. Cousin Cara (I call her that because that is her name) has never bought a stock in her life. Although she can build a damn fine looking virtual farm, I don’t think she could differentiate between a stock and a sock. In fact, I remember once telling her that I needed to hang up the phone because the market was crashing. To which she replied, “Someone is crashing into the market! Where am I going to buy my beefsteak tomatoes tomorrow?”

Yet lo and behold, Cousin Cara called two weeks ago inquiring how she can buy shares of Facebook. Now just imagine 845 million cousin Caras clamoring for shares. If that seems farfetched, visualize just 15% of Facebook’s user base bidding for just 1 share each – that still equates to over 126 million Caras controlling over $5 billion worth of demand – a little more than the entire float. We are in unchartered territory here. Never before has a company with this much global influence and consumer fascination penetrated the public markets. Consequently, Facebook possesses one asset that distinguishes it from virtually every other company on the planet: built-in aftermarket support. It reminds me of a joke that I don’t find very funny:

“How many brokers does it take to sell Facebook shares?” ——- “None, but that doesn’t stop 20 of them from getting in between a buyer and a seller and killing a transaction.”

Will Facebook ignite the IPO market? Perhaps. Will it resuscitate it? No.

In order for our IPO market to thrive once more it would require the implementation of a functional aftermarket support system. Without a mass influx of companies with significant investor reach and embedded support platforms going public, we would need to see the resurgence of smaller broker dealers, analysts and market makers getting behind lesser known names. The likelihood of BD’s backing smaller cap companies with penny trading spreads? Nil. The odds of a hundred more Facebooks filing to go public in the near future? Less than nil.

Without sufficient aftermarket support there will be no small cap IPO renaissance to save our economy during this era of unrivaled innovation. Our only savior is the Private Company Marketplace (PCM) where high growth companies with enticing spreads already exist. Those who are calling this the end of the private markets are about as visionary as a bean counter – no offense to bean counters, you once served a great purpose before calculators were invented. Wake up, people. This is not the end of the private markets. This is just the beginning.

Don’t forget to register for TSL’s Capital Creation and Crowdfunding Conference in Los Angeles on March 13th and 14th for an unparalleled opportunity to meet the players who are shaping the Private Company Marketplace (PCM) as well as learn how to capitalize in a changing capital markets’ paradigm.

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Where is Facebook’s Audacious S1?

Posted on February 3, 2012 | 4 Comments

It is official – Facebook’s S1 has been filed. This might just be the first prospectus I’ll find riveting enough to read cover to cover. Now that the suspense has subsided, I must admit, I am somewhat disappointed.  Not because of the company’s financials. The numbers were in line with expectations. Not because I foresee sluggish growth. Quite the contrary, as I believe the company possesses enormous potential. I simply find it disheartening that a company, which transformed global communications and enhanced overall capital formation by igniting the private markets, would end up choosing to do the stereotypical IPO, epitomizing all that is reprehensible on Wall Street.  

Frankly, I was hoping for the dramatic IPO entrance that would defy the Wall Street establishment. If there was one company that could have succeeded, Facebook would have been it.

But instead, like what has become disappointingly routine in the IPO process, a handful of the largest investment banks, which seem to underwrite every other high profile deal, will waltz Facebook onto the NYSE or NASDAQ (what’s the difference anymore?) and most likely allocate its stock to the same few favored institutional clients who receive the bulk of shares in every other coveted IPO.  

While the rest of the country withers away on the sidelines watching capital flow once again from big bank to big fund manager to large cap company, the lobbyists are hard at work in Washington ensuring that this impaired system remains unchanged.  Thank you, lobbyists and TARP, for making it nearly impossible to be able to distinguish between big corporation and big government.    

The late Milton Friedman had affirmed that “society runs on self-interest, whether it be the self-interest of many (capitalism) or the self-interest of few (communism)”. As much as I hate to be an alarmist, unless we rebuild our capital markets, it is pretty clear where we are headed.  

For those readers who are not economist groupies, try not to confuse Milton Friedman with another famous late Milton (Berle) who once quipped, “I have a brother who is afraid to go to sleep because he dreams he’s working.”  Poignantly, I know a group of individuals who are afraid to go to sleep because they dream of having to support people like Milton’s brother. I call them achievers, although Socialists know them simply as sugar daddies.

In any event, while we observe yet another instance of capitalism at its worst, I find myself longing for the good ol’ days when the economy prospered simply because capital poured to the little guy. You remember that guy – the innovator, the entrepreneur, the job creator. He was pretty popular back in the 1990s.

All of this reminiscing had me imagining what Facebook’s IPO might have been like had it gone public sixteen years earlier, long before the public markets suffered irreparable damages. I quickly got hold of a “transforminator”, a device invented by my 6 year old son, specifically designed to effectuate such rare and complicated moments of conjecture.  Here’s what the “transforminator” revealed:

Had Facebook gone public in 1996 (overlooking the fact that Mark Zuckerberg was only 12 years old), it would have successfully IPO’d  with a market capitalization somewhere in the neighborhood of $400 million instead of today’s projected $100 billion valuation, thus allowing the investing public to reap the massive appreciation of over 24,000%. It would have been priced above the range, likely quadrupling its share price on its trading debut. The wealth that would have been created in that one day alone could have funded a slew of start-ups and may very well have inspired the next Apple. Even more importantly, the shares of this small cap company would not have floundered, like Groupon and Zynga, in a hostile market environment. Instead, it would have flourished in secondary trading. Why? Because at that time, there was an entire ecosystem of small cap brokers, market makers and analysts providing after-market support. In 1996, as opposed to only 6 underwriters, Facebook would have gone public with 106 underwriters. That would have amounted to over 100 analysts covering the stock and thousands and thousands of stock brokers placing its shares with clients on an ongoing basis. Today, that once great support system is as dead as Mel Gibson’s acting career.

Nevertheless, Facebook, it is not too late to revolutionize the capital markets and right this ship. If nothing else, demand a large allocation for your loyal user base. Use your platform and incorporate direct registration tools to provide after-market support.  Continue to prosper. In the words of yet another great Milton (Hershey), “Caramels are only a fad. Chocolate is a permanent thing.” Be the chocolate, Facebook. Our children’s future is dependent on it.

Because it’s more comforting to end any article underscoring economic doom and the downfall of free enterprise with some levity, I would like to inform you that I am currently on the lookout for quotes from any and all Miltons, as they seem to be very insightful people. If you have any you’d like to share, please comment below.  

Hope to see you in NYC on Thursday February 9th at ACG’s everything you need to know about the private company marketplace event. Also, please save March 13th and March 14th for our two-day conference in Los Angeles. The 13th will focus on crowdfunding platforms, the crowdfunding legislation, angel networks, transforming an idea into a viable business and workshops for entrepreneurs. The 14th will focus on the demise of the small cap IPOs and the loss of the aftermarket support system, the rise of the private markets, developing the infrastructure of the PCM (settlement and clearing, ROFR issues, bringing back the once successful ecosystem of small cap underwriters, brokers, market makers and analysts), successfully transacting in the private markets, legal pitfalls, life after Facebook’s IPO and constructive liquidity strategies for private company stock. Official invitation to follow shortly!

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Chasing Spreads in Private Company Secondary Transactions

Posted on January 9, 2012 | Leave a comment

I just read a fascinating article depicting how decimalization has caused the demise of the small cap IPO market and how the customization of spreads could provide a potential solution. If allowing issuers to determine their own trading spreads could improve the functionality of the public markets, I can only imagine the impact it would have on the unfettered private markets.

Those who have been following my work know that I am a strong advocate for utilizing hindsight to reconstruct the damaged capital markets. As a new ecosystem unfolds, with the private company marketplace (PCM) rising to fill the capital formation void left behind by NASDAQ, there has never been a more opportune moment to work with a clean slate and institute protocol based on the previous successes and failures in the capital markets.

The frenzy to own Facebook stock has inspirited an entire subculture of private share brokers trying to get in on the action and capture wider spreads.  And nothing incentivizes a stock salesman more than a wide spread. I believe that the ample spreads in the PCM, coupled with a developing infrastructure that includes research, greater transparency, certificate tracking, settlement and clearing functions, will motivate brokers to get behind lesser known private companies and propel this new marketplace to astonishing new heights. Much like the NASDAQ, also once known for its more generous spreads, did more than 40 years ago when it provided orderliness and clarity to the fragmented and obscure OTC marketplace. 

As its procedural framework and back office system matures, a typical private company secondary transaction will no longer proceed as follows:

From: Broker #1 [mailto:broker#1@gimmemorespreadsecurities.com]
Sent: Thursday, May 05, 2011 12:33 PM
To: EVERYONE IN MY OUTLOOK
Subject: Facebook Shares

I am representing a seller of 50M shares of Facebook. Anyone interested in owning a piece of the greatest company ever incorporated?

Sincerely,

Broker#1

From: Broker #2 [mailto:broker#2@galacticcapital.com]
Sent: Thursday, May 05, 2011 12:34 PM
To: Broker #1 [mailto:broker#1@gimmemorespreadsecurities.com]
Subject: Re: Facebook Shares

Dear Broker#1,

I have a buyer that would be very interested. Call me on my cell right away at 555-867-5309 (yes, this is my real number)

Regards,

Broker#2

 12:35 PM – The Initial Call:

Broker#1 – Hi, I am following up on your email regarding the Facebook shares.

Broker#2 – Wait, before we go any further you need to know that my side won’t take less than $1 per share

Broker#1 – Well then my side needs $1 per share too. Your side is not getting more than my side. My side would rather walk away and get paid nothing than see your side get more than my side.

Broker#2 – Well my side is not getting less than your side. My side would also rather go back to capturing penny spreads in the public markets than see your side get more than my side.

Broker#1 – My side is so much better than your side.

Broker#2 – Well my Dad is way bigger than your Dad.

Broker#1 – Let’s take a step back from discussing spreads. How about you tell me about your buyer?

Broker#2 – No, first you tell me about your seller. I need to make sure he’s real.

Broker#1 – No, first you tell me about your buyer. I need to make sure that he is real.

Broker#2 – Oh, my buyer is real alright. In fact, he is real and he is spectacular.

Broker#1 – Well my seller is real too. We have a very close relationship. The seller came to me through my 3rd cousin who went to sleep-away camp with Mark Zuckerberg’s great aunt’s grandson’s cousin’s daughter’s best friend’s brother.

Broker#2 – Well my buyer is very rich.

Broker#1 – Is your buyer based in the U.S.?

Broker#2 – No. He is overseas. He is the richest man overseas. In fact, he is the richest man on the planet. Actually, he is the richest man in the universe. His money is based in an off-off-shore account. Actually, it’s held in an off-galaxy account. But he is very real and very motivated to own Facebook stock. He’s so rich he even has his own space ship.

Broker#1 – But can your rich buyer produce proof of funds?

Broker#2 – He can if your seller can produce a copy of the certificate. Have you seen a copy of the certificate?

Broker#1 – Yes. It is very real. It’s so real that even Donald Trump would authenticate this certificate. But I won’t produce a certificate until I see proof of funds.

Broker#2 – Well I won’t produce proof of funds until I see a certificate.

Broker#1 –Why don’t we just get the seller and buyer on the line and have them speak to each other directly.  

Broker#2 – Sounds good. How about you call me back in an hour with the seller and I will conference in the buyer.

ONE HOUR LATER

The Conference Call:

Broker#1 – Hi everyone, I’d like to introduce Broker#3 who represents the seller

Broker#2 –I’d like to introduce Broker#4 who represents the buyer

Broker#3 – Well, actually I am friends with the broker who represents the seller

Broker#4 – Well, actually I sang in the glee club in elementary school with the wife of the broker who represents the buyer. We all reconnected recently through Facebook.

Broker#1 – How about Broker#3 and Broker#4 patch in the actual seller and buyer

TEN MINUTES LATER

Broker#1 – Okay, who do we have on the call?

Broker#2 – Broker#2 here

Broker#3 – Broker#3 here

Broker#4 – Broker#4 here

Broker#5 – Broker#5 here

Broker#6 – Broker#6 here

Broker#7 – Broker#7 here

Broker#8 – Broker#8 here

Broker#9 – Broker#9 here

Broker#10 – Broker#10 here

Broker#11 – Broker#11 here

Broker#1 – Is there an actual seller or buyer on the line?

Broker#11 – whkhjkgfjsgfujkdfgjkdgbjdk

Broker#1 – can you repeat that?

Broker#11 – whkhjkgfjsgfujkdfgjkdgbjdk

Broker#4 – Can anyone hear what that guy is saying? Hello. Hello. Hello. I can’t hear anyone. Can anyone hear me? Papa, can you hear me? Papa, can you hear me?

Broker#10 – Is someone singing a Barbara Streisand song?

Broker#2 – I can barely hear Broker#11. I think there are just too many people on this conference line.

Broker#3 – What? What? What?

Broker#5 – Can someone remind me why we are even on this call?

Broker#4 – What’s the damn spread? What’s my share? I need to make at least 60 cents so I can pay the guy who taught me how to log on to the Internet and sign up for the Facebook account that enabled me to be introduced to the husband of the wife I sang with in glee club.

Broker#6 – Yeah, what’s my cut? I’ve got people to pay too.

Broker#7 (SCREAMING) – Okay, I am taking the lead. This deal won’t get done if the spread is over $1. I say everyone gets 10 cents except for the broker singing Streisand and the other guy who is having trouble hearing. Those two will get 5 cents. My rich alien buyer wants to buy the 50M shares right now. The funds are in escrow on the planet Zorbithon in a private bank that has no exposure whatsoever to European debt. Once my rich buyer finishes learning English with Rosetta Stone, he will review and sign the stock transfer document. Since he is so rich it won’t take him very long to learn a new language. We’re gonna get this deal done!

TWO MONTHS LATER

From: Broker #10 [mailto:broker#1@gimmemorespreadsecurities.com]
Sent: Thursday, September 20, 2011 2:33 PM
To: Broker#1, Broker#2, Broker#3, Broker#4, Broker#5, Broker#6, Broker#7, Broker#8, Broker#9, Broker#11
Subject: Facebook Transaction

I just learned that this transaction has been ROFR’d. Apparently, Facebook feels uncomfortable about having an extra terrestrial on the cap table.

Sincerely,

Broker#10

Disclaimer: All characters appearing in this article are fictitious. Any resemblance to real persons or aliens, living or dead, is purely coincidental. No brokers were harmed while writing this article.

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