Facebook's stock is off more than 30% since its IPO. It has had oneof the worst first months after a public offering, ever. This has corners of Silicon Valley reeling. One of Silicon Valley's most influential early stage startupinvestors, Y-Combinator's Paul Graham , wrote an email this week to dozens of CEOs in his portfolio warning that becauseof the market's reaction to the IPO, "bad times" may be ahead. |
He argued that startups might soon have a hard time raising money, and that manywill crash and burn. Not all of that is true. Money is flooding into Silicon Valley, and it's not going to stop.The institutions that backed Facebook's early stage investors mustbe thrilled with their investment's outcome. But Graham is right about one thing: Facebook's post-IPO flop haschanged the landscape.
Specifically, it has demonstrated that the public markets will notovervalue social media companies with big user numbers and limitedrevenues. Here is a brief rundown of companies that face a very different setof circumstances today than they did on May 17, before Facebook'sIPO: Pinterest, often billed as " the Next Facebook, " raised a boatload of money just prior to the Facebook IPO – $100 million+ at a $1.5 billion valuation. This wasimpeccable timing. It means that in the short term, Facebook's poorIPO will not change Pinterest's plans or execution.
In the longterm, however, Pinterest will have to be a different type of latestage startup than Facebook was. It will have to be stronger onmonetization and mobile. Twitter's stock is down 15% on private markets since Facebook's IPO. It haslots of users, but small revenues. Its IPO prospects look muchdimmer than they did a month ago.
We think it will sell to Google instead of remaining independent. Tumblr has to be worth less today than it was before Facebook's IPO. LikeFacebook it has lots of users and a lot of user-generated content.Its ad business is even less mature than Facebook's. Airtime , a site that pairs Facebook users in random video-chats, raised$33 million prior to launch. Facebook, like AIM before it, isproving that it's hard to make money showing ads on a product usedfor communication.
Facebook's IPO just proved that the publicmarkets are aware of this problem. Airtime will face it soonenough. Path , a startup by ex-Facebook exec Dave Morin, is supposed to be themobile-only Facebook. That is not as attractive of a propositionfor investors as it once was. Workday and Kayak have to deal with delayed IPOs after Facebook's.
Zynga , a games company that depends almost entirely on Facebook for itsusers, has seen its stock crater since Facebook's IPO. There'sreally no logical reason for that. It's just the opposite of thehalo effect.
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