Get ready for a blockbuster — and almost nuts — year of technology in 2012. Why? Because Facebook is doing the mother of all initial public offerings.
And much like Netscape and Google (s GOOG) before it, the $5 billion offering is being viewed as the much-awaited catalyst for the technology industry and is expected to set off a flurry of activity. I have been here long enough to cover the IPOs of both Netscape and Google, and on both occasions, the tailgate effect was enough to pull even the clunkers (read: marginal startups) to the proverbial finish line.
We are already seeing four recently public companies — Pandora, LinkedIn, Zynga and Groupon — ramping up their efforts to buy little startups. Google is competing for talent, and so are other Internet giants. And now Facebook!
I have been wondering whether we would see a slow exodus of Facebook employees, which in turn would force the social networking giant to go out and start acq-hiring people by buying a lot of tiny startups. And if more of these little companies get acquired, more dollars will rush into the startups and thus create a fly-wheel effect. The presence of Facebook millionaires is only going to accelerate angel investment activity.
Nevertheless, I wanted to see how some of the top venture capital investors (whom I deeply respect for their clear and concise views of the industry) were thinking about the landscape.
Fred Wilson, a general partner of New York–based Union Square Ventures and an investor in red-hot companies like Zynga, Etsy, Twitter, Foursquare, Tumblr and Kickstarter, emailed me back with this answer:
Yes, I said exactly that on Friday evening at a talk I gave at social media weekend at Columbia University. I think this is great for entrepreneurship, startups, angel investing, etc., etc. because we are going to get a bunch more capital created and entrepreneurs created and we’ll also get more exits.
What this means is that super angels and hacker universities like Dave McClure, Y Combinator and TechStars are going to see a lot more of their companies get acquired. Jeff Clavier, the founder and partner of SoftTech VC, an early-stage investment firm based in Palo Alto, Calif., who recently closed his $55 million fund, had a multitude of thoughts:
Because of the ginormous valuation, it is clear that the number of Facebook employees reaching tens of millions of dollars in (paper) net worth is unusual. Candidly a number of early Facebookers have already taken off and “retired” at the age of 30/35. One of the questions moving forward is how much of a carrot can Facebook give new employees with such a high base valuation.
Remember that Facebook has a very high bar to talent acquisitions, and should not compromise on that. Once Facebook has a public currency, it will make it easier for them to make larger paper acquisitions. Until recently they were not doing that to avoid issues with the 500 shareholder rule (Ed Baker’s Friendly was a rare, recent deal where equity was used).
Brad Silverberg, a veteran of Microsoft and other tech companies and a general partner at Ignition Partners, a Seattle-based venture fund, thinks the IPO could have a corroding influence on the company culture.
One of the biggest challenges Facebook will face is the gulf between the have’s and have-not’s within Facebook. It can create tremendous internal stress and can result in people leaving to follow their own entrepreneurial dreams. This can be both for early people who made it and love the thrill of the startup, and for later people who are contributing, gain confidence, and now want to go off and make their own fortunes.
I think Silverberg’s point is pretty spot-on. I have seen this haves-versus-have-nots dynamic create havoc at many companies before. I have spoken to multiple people, and there is a general sense in the Valley that there is a large contingent of Facebookers who are ready to bolt. Google in comparison didn’t see an exodus of employees until recently, mostly because of its deep engineering-centric culture. Before it was grafted with the Microsoft genes, Google was a company where the smartest people went to be with the smartest people. It wasn’t till 2007 that the company started to lose its top-rated talent.
Facebook — Mark Zuckerberg’s Hacker Way missive not withstanding — is a lot more mercenary and materialistic. And part of that means employees are likely to cash their chips and run, only to place them on some new startups. And whichever way you look at it, I am pretty sure 2012 is going to be one heck of a ride. Buckle up!