Silicon Valley Watcher

It Was 'Smart Money' That Got Burnt In $FB IPO

Fri, 25 May 2012 14:52:22 -0800

There's a lot of anger around the botched IPO of Facebook but much of that is from the "smart money" that wasn't able to convince retail investors, the regular people who invest in stocks, to take their shares.

The point of a "pop" in an IPO is to provide an incentive for retail investors to acquire the risk -- the shares from investors and insiders -- and then to continue holding that stock and limit volatility.

But the smart money had already decided what the stock was valued at because of trading activity in secondary markets, which was in a range of $38 to $42 and only wanted to price a 10% pop, which is why the $38 price was chosen. That's not much of an incentive to take on a very risky investment.

The fact that retail investors disagreed with the valuation and largely stayed away is a very good sign because it shows that they are far more sophisticated than the Wall Street bankers and their clients.

So let's not shed tears for the "smart money" they were the ones that literally bought the hype about Facebook's future prospects. The SEC isn't going to help them because they are considered to be sophisticated investors that know the risks.

The good news is that few small investors bought shares; the bad news is that few small investors bought shares.

This means that the smart money, in its zeal to leave as little money on the table in the IPO (it's called fair pricing), has messed things up for future tech IPOs and prospects for getting their money out of their other positions. Greed has its consequences.

The Facebook fiasco also puts the spotlight on secondary markets and the role they play in helping private companies raise capital and for early investors to find an exit.

It should be good news for private stock markets such as Sharespost and Second Market because tech IPOs will be cutback leaving these markets in a great position as the only alternative to being acquired.

The problem for the smart money is that these private markets have little liquidity and share prices are far more susceptible to hype and manipulation than in public markets. It could quickly become be a dumb investment.

More Bad News: A Deluge Of Facebook Shares Could Drop Price Further

Thu, 24 May 2012 14:48:11 -0800

Facebook's IPO is considered a failure in that the share price was too high to attract retail investors.

There's more bad news. More than 1.7 billion shares owned by insiders, such as employees, etc, will be "unlocked' over the next six months and will be eligible for trading. That's a huge overhang considering that Facebook floated 421 million shares in its IPO. It's equivalent to an additional four Facebook IPOs.

The largest block of shares, about 1.3 billion, unlocks in six months time.

Did Secondary Market Trading In Facebook Spoil The IPO?

Thu, 24 May 2012 12:47:35 -0800

There are thousands of articles dissecting the reasons why things went bad for Facebook [$FB] yet none have mentioned the role of secondary markets. In these private stock exchanges, Facebook was trading at around $42 a share in the weeks before the IPO.

Interestingly, Facebook set the opening price at $38 hoping for about a 10% pop on the first day, which would bring it up to $42 at close.

Since secondary markets are the playground of acredited investors, it's "smart money," and much of it institutional, it would be a fair assumption by Facebook that a $38 price was in the right ballpark.

However, this means that the trading in secondary markets essentially set the IPO price, leaving little wiggle room for Facebook.

Will secondary markets become more important in pricing future IPOs? Or will private companies choose to limit secondary market trading as much as they can, to avoid what happened with Facebook?

It's ironic that Google [$GOOG] carefully managed its IPO and snubbed much of Wall Street so as to not reward clients of investment banks; and to price fairly at the outset so that there would be as little pop as possible, yet it closed 18% up. Facebook went with the investment banks and took their advice and ended up with flop.

McKinsey Reports That Marketing Is Complicated

Mon, 21 May 2012 17:52:39 -0800

Chief Marketing Officer or VP of Marketing/Communications has to be one of the toughest jobs around these days. Why? Because of the massive fragmentation going on in media and communications.

...

The good news about the new media and communications channels is that it is all measurable. You can measure things in incredible detail. You can slice and dice the measurement data in ways that were never possible before.

The bad news about the new media and communications channels is that it is all measurable. There is a mountain of data that can sliced and diced in so many ways. What is worth measuring? How much should you measure? What do the measurements mean? How can you relate the measurement data to revenues?

We are still figuring out these and many other questions. And that's why marketing and communications today is so challenging and it isn't going to get any easier.

That's from my post Chief Marketing Officer - Toughest Job Around . . . written about four years ago.

Here's a good article on the same theme but with some hard data from various industries, written by McKinsey staff: David Court, Jonathan Gordon, and Jesko Perrey.

De Young Museum Workers Protest Union Busting And Cuts In Benefits

Sat, 19 May 2012 17:19:26 -0800

Workers at the prosperous de Young Fine Arts museum in Golden Gate Park staged a friendly protest Friday evening during the popular "Young at Art" celebration of the talents of students from San Francisco's public schools.

The workers say that the museum is successful and profitable yet they have been called "spoilt" by the head of HR and told to take cuts in benefits.

Zuckerberg Won't Share - IPO Will Consolidate His Total Control

Thu, 17 May 2012 18:11:06 -0800

(The Facebook Campus: One, Hacker Way. Photo by Tom Foremski.)

Lucy Marcus, a leading advocate for reform of boardrooms, is highly critical of Facebook's corporate structure, following a "Shareholder Spring" where the boards of many large companies faced angry shareholders.

In annual meeting after annual meeting around the world, boards have been taken to task by investors and other stakeholders on a wide range of issues: remuneration, board composition, competence, diversity, voting control, dual stock, and more... No sector has been immune; no director has been untouchable.

Yet Facebook has adopted a structure that enables co-founder Mark Zuckerberg to retain complete control following the IPO, it's as if it were a private, and not a public corporation. [I would not be surprised if he tries to take the company private again, once he's paid-off his largest investors.]

Facebook swims against the tide of a global movement toward transparency, engagement, and checks and balances.

Please go to Reuters and read:

Facebook versus the Shareholder Spring | Lucy P. Marcus

Foremski's Take: Facebook was not interested in reforming Wall Street with its IPO, as Google tried to do with its dutch auction process and snubbing the big investment firms. So it's not surprising that Facebook isn't interested in adopting a more open company governance structure.

In fact, Facebook [$FB] has copied Google's [$GOOG] corporate structure as closely as it could, and even improved on it. The two-tier shares where insider's shares have ten times the voting power is common to both companies. Mark Zuckerberg figured out an additional way of keeping control that Google's founders missed: he managed to retain the voting rights of shares he had sold in secondary markets.

Former Senior Oracle Exec Gary Bloom Heads Mark Logic

Thu, 17 May 2012 11:38:16 -0800

Gary Bloom has been named CEO of Mark Logic, which returns him to his database roots. This is an interesting appointment and shows that the board of Mark Logic is trying to spruce up the database company and either dress it up for sale or try to expand it's business.

He was at one time considered a possible successor to Larry Ellison, founder of Oracle. Mark Logic is used in several interesting media publishing applications.

Here's Mr Bloom's history:

Former vice chair and president of Symantec Corporation, where he led the company's line of business organizations and corporate development efforts. Gary joined Symantec through the company's merger with Veritas Software where he was the chairman and CEO. Before joining Veritas, Gary held senior executive positions at Oracle. During his 14-year career at Oracle, Gary led Oracle's database business, worldwide marketing, support, education, and alliance organizations, and was responsible for mergers and acquisitions.

I interviewed former CEO David Kellog: Mark Logic's David Kellogg - Creating Media From Unstructured Content - SVW

The Back Story On 'Curated By Intel' - Experimental 'iQ' News Magazine

Wed, 16 May 2012 16:33:06 -0800

(Bryan Rhoads, Editor-in-Chief of iQ at Intel's offices in the Presidio, San Francisco.)

Earlier today, I met the team responsible for this morning's launch of 'iQ by Intel', an online magazine featuring daily news and feature articles from around the globe plus original content from Intel.

The magazine is curated by Intel employees, choosing and sharing articles from a river of media content surfaced by special tools developed by Intel.

I was pleased to hear Bryan Rhoads, the mastermind behind the project, and its Editor-in-Chief, say that I was one of the people that inspired the venture with my writings about how every company is a media company.

Here are some of my notes from the meeting:

Intel Builds Vietnam's Largest Solar Power Plant

Tue, 15 May 2012 15:56:24 -0800

The solar array at Intel's Vietnam Assembly and Test Factory in Ho Chi Minh City. (Flickr photo.)

By Intel Free Press

The largest operating solar power plant in Vietnam was installed recently at Intel's Saigon Hi-Tech Park facility in Ho Chi Minh City. The 1,092 high-efficiency photovoltaic panels on the roof of the Vietnam Assembly and Test Factory came online in April.

The system is expected to generate about 321,000 kWh per year that will be consumed directly by the factory, reducing the flow from the local electrical grid.

Zero1 Launches Ambitious 'Seeking Silicon Valley' Arts Festival

Fri, 11 May 2012 13:46:41 -0800

ZERO1 Executive Director Joel Slayton and Jaime Austin - Curator and Director of Programs for ZERO1

ZERO1, the biennial arts and technology festival, announced a massive expansion in its program this year, with more than 100 arts installations Bay Area wide and 40 arts museums, galleries, and studios taking part. The theme this year is "Searching for Silicon Valley."

The announcement of this year's program was made at SFMOMA, which is one of many arts organizations that will take part in this year's festival.

Jaime Austin, Curator and Director of Programs for ZERO1, said that the idea for the theme"Seeking Silicon Valley" came from her experiences from meeting visiting artists at the airport and their wish to see Silicon Valley.