Facebook's failed IPO illustrates the hubris and greed of the bankers that advised the company. Instead of pursuing a sensible investment strategy, they tried to cash in on the public offering of one of the world's most revolutionary companies.
Please forgive me for the blunt use of adjectives, but the Facebook experience leads me to the belief that bankers are stupid. The Facebook IPO was a great, unique, marvelous chance to clean up their image. After all, the most revolutionary website of the last fourteen years (Google was founded in 1998) was up for grabs. Banks could have enjoyed the marketing boost of helping little families own a stake of the blue brand, where everybody – be it the little daughter or even grandpa – joyfully spends large chunks of his or her spare time.
And what did the banks do? They messed it up. They tried to cash in on grandpa and on the little daughter. The price chosen for the shares was too high: It dropped to a low of around 31 dollars after an initial quotation of 38 dollars per share. Some investors also claim that Morgan Stanley (the bank behind the marketing disaster) and Facebook withheld “negative information” that could have likely influenced the stock price. The father of little daughter lost money and now has to bear the insults of grandpa, who calls him a money squanderer.
Bankers should not despise marketing
We may defend the dad by saying that he is not the bad guy: Morgan Stanley is. It seems that Facebook’s CFO is to blame as well: David Ebersman had the brilliant idea to increase the number of shares destined for private investors just days before trading opened, creating all the right conditions for a nose-dive of share prices after the bell rang at the New York Stock Exchange. It is quite interesting that no banking partner advised him against this move – even though dispensing such advice should be the job of a bank, one would imagine.
Bankers should not despise marketing. It is very similar to finance in that it constitutes only an “accessory function” in the economy: Marketing only serves the need of manufacturing. While finance provides money to make things, marketing makes sure that people pay money for the things that are made. The difference is that finance guys happen to be rewarded with stellar salaries compared to the salary of the average marketing Joe.
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Of course, we are not here to deprive poor bankers of the millions they deservingly earn through the sacred practice of punching numbers into Excel tables. Yet it seems that excessive exposure to computer screens is distracting them from the reality outside the windows of their crystal palaces. Those people in the park are not convivial BBQ enthusiasts or broke backpack travelers. They are people angry at bankers, and they are people who use Facebook. If bankers wanted to give people arguments to question the “social” function of banks, they fully achieved their goal.
The Facebook flop is not the first ill-directed tech IPO in history. A law firm interviewed by Reuters claims to have litigated some 300 cases in the dot-com years. In those cases, too, information disclosure and the management of the IPOs themselves was flawed. But the mistakes came at a time of general faith in banks: Activists preferred to target the IMF rather than Goldman Sachs. Today, the little game of greed represents a big marketing failure in a time of deep hatred directed at banks. Therefore, bankers should not feel too superior to their marketing peers. They should learn from them, to apply a better equilibrium between greed and communication.
Mark Zuckerberg’s big mistake: He chose bad business partners
Much chatter happened in the days before the IPO to judge whether the company’s CEO Mark Zuckerberg was “up for the job.” A stream of opinion articles claimed that the brilliant and compulsively underdressed millionaire “never experienced a failure,” so “it was hard to estimate if he could be able to face real business difficulties.” The worst he had to do was to fence off the lawsuits of the Winklevoss twins – who merrily went back to their row boat after receiving a million-dollar settlement from Facebook. The Facebook IPO failure is a bankers’ failure, but also Mark Zuckerberg’s big mistake: He chose bad business partners.
All options are on the table. He could step aside and let a more experienced CEO take over, so that he can concentrate on business development (that’s the style pursued by Bryn and Page at Google). He could face harsh opposition and be forced out, as Apple once did with Steve Jobs – but this is extremely unlikely due to the shareholder structure and the overall good shape of the company. Mr. Zuckerberg might also stay in power and keep the company together, proving his critics wrong. Facebook is a digital coming-of-age story worth billions of dollars, driven by the narrative of a fantastic manager and inventor, and made even more entertaining by the fact that a crash would reverberate for years. Good luck, Mr. Zuckerberg: We are here to see and to chat.
Stefano Casertano, The European