Goldman’s Facebook deal strikes blow to private-stock market
The SEC’s regulatory interest in the market in private-company shares might cripple this source of funding.
It looks as if Goldman Sachs’s $450 million investment in Facebook might put the kibosh on the growing market in trading private company stock. As reported in Euromoney’s December issue (Private stock markets – an alternative to IPOs), growth companies, particularly those in the social media sector, are increasingly delaying their IPOs and turning for liquidity to direct investments or private-stock trading platforms, such as SharesPost or SecondMarket. Now the hefty investment by the public’s most disliked investment bank into the social media darling has sparked an investigation by the SEC into pooled investment funds in pre-IPO stock.
The key query by the SEC seems to be whether private firms’ stock is held by more than 499 shareholders. If that is the case, firms, even though private, are subject to certain financial disclosures. The question is: is an investment fund to be counted as one shareholder? Or should the underlying shareholders be counted separately? One would hope that the high-profile investment in Facebook might open the door to similar investments for other growth firms. However, for smaller and medium-sized companies, the deal is more likely to spell disaster.