Will Facebook Let Its Users Buy IPO Shares?
Front-and-center on Facebook's IPO prospectus is its mission "to make the world more open and connected." Yet the IPO process itself is notoriously closed and opaque, with financial institutions parsing out shares at the offering price to their best clients to give them the benefit of the initial run-up in value.
Since Facebook derives 100% of its value from the willingness of its 845 million users to share their activities, will Facebook share the bounty with its users? And if so, how?
It so happens that Chris Kelly, Facebook's former chief privacy officer (and onetime candidate for California attorney general), is a director and biggest outside shareholder in Loyal3, a startup that could help Facebook do that .
Loyal3 has developed a platform that would allow a stock issuer, such as Facebook, to offer shares to millions of people at the same price as the huge financial institutions underwriting the deal.
Here's how it works: Buyers set up an account and then commit to a maximum bid of $200, $300 or $400, increments geared for small, individual investors. The bidder is awarded a number of shares depending on the offering price. And that transaction is shared on Facebook.
"Facebook has taken a central role in the online identity broker in everyday life. Why shouldn't it extend to financial services as well?" Mr. Kelly said. "This is the next evolution of the 'like' button in a lot of ways."
Loyal3 CEO Barry Scheider said his company will power an IPO in the coming months. One question: Will it be Facebook's IPO?
Messrs. Kelly and CEO Barry Schneider won't say, but they also won't rule it out.
"Imagine a day when 500,000 or 10 million people get access to an IPO at the same price as institutions," Mr. Schneider said. "We are ready to do a 'social IPO' and we're going to do just that ."
There's some precedent here. In an attempt to live up to its "Don't Be Evil" mantra, Google used a "Dutch Auction" to let individuals buy shares at the IPO price in 2004. You'd think Facebook would want to take the concept further.
But Facebook has another good reason to let its uses in on the action. As anyone with a dim memory of Friendster or MySpace can attest, the network effects that create social phenoms can also accelerate their downfall. But if Facebook offered shares to its users, they'd have an incentive to keep sharing their lives on Facebook, and thus helping create value for a company they own.
That's also the bigger idea behind Loyal3: create a class of fans-owners by allowing brands to cost-effectively sell small amounts of shares to consumers -- in as little as $10 increments -- via Facebook. (See separate Ad Age story.) The mechanism is a direct stock-purchase plan that has been around since the 1970s but not widely used because of the expense of servicing many small shareholders.
Loyal 3 built a digital platform to take the costs out and make it as easy to buy a company share as a book on Amazon. Brands could do more than sell stock directly; they could give it away in lieu of miles, points or other incentives to their best customers. "The truth is people care way more about things that they own than things that they don't," Mr. Schneider said.