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Facebook’s IPO: A study in arrogance

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There’s something to be said for being a fossil when it’s time to look at a phenomenon like Facebook’s pending stock offering. The medium is new, the numbers are high, the buzz is huge, but it’s the same old story I’ve seen a million times in four decades of business writing: A hot company is graciously offering the investing public a piece of its action. At a hot high price, of course.

Look, I know I’m a print dinosaur. I was wrong, early and often, on Google’s stock price when it first went public, for which I ultimately apologized. My one and only Internet innovation came about 20 years ago, when I was among the first business columnists to publish an e-mail address. I don’t use social media because I value my privacy and fear committing some online indiscretion that would follow me forever.

That said, I’d like to share three things that leaped out at me from Facebook’s financial filing. They involve marketing, hypocrisy and arrogance — in other words, standard Wall Street fare.

Marketing: If Facebook’s offering ends up being the advertised $5 billion, and the company’s stock market valuation is in the expected $75 billion to $100 billion range, it means that only 5 to 7 percent of the company’s shares will be available to public investors.

While there are all sorts of rationalizations for having such a small public offering relative to a company’s size, the real reason, as any Street insider will tell you, is to create an initial shortage of stock so that the share price runs up when public trading starts.

It’s not enough for Mark Zuckerberg & Co. to have created an amazing, incredibly valuable company over an incredibly short period. They feel the need to use this tacky market trick to drive up Facebook’s value even more.

Why do it? Facebook gets bragging rights — and so do the venture capital types who have put money into the company. A higher Facebook share price begets a higher reported return for investment managers to show potential clients, making it easier to market the next fund. In VC-land, there is always a next fund.

Hypocrisy: A key selling point of social media is that it’s a democratizing force — everyone’s on an equal footing, yadda, yadda, yadda. But Facebook’s stock structure, like Google’s, is far from democratic.

There’s one class of voting stock for the public peasants, and a higher voting class that ensures control for the elite insiders. Everyone’s equal in theory. Just not in practice.

Arrogance: Ever since Google included a “don’t be evil” screed in its initial public filings, a founder’s letter has become de rigueur for a hot Internet offering. Zuckerberg’s is a classic. My (admittedly skeptical) takeaway: I’m not just a really rich guy, I’m a really good guy because I’m in this to make the world “friendlier,” not to make money.

Yeah, right. And Wall Street exists to help small retail investors. And the check is in the mail. 

Sloan is Fortune magazine’s senior editor at large.

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