1. It is so
not the nineties
Since the dot-com bust, start-ups have come to appreciate the drawbacks of going public: the threat of shareholder lawsuits; the compliance costs; the way employees get distracted by every market-cap fluctuation. Meanwhile, new markets for private stock transactions and the emergence of large late-stage institutional funding provide some benefits of being public without the downsides.Companies are now waiting until they’re very mature to hold IPOs. Facebook might have waited even longer if it hadn’t approached an SEC limit on private shareholders.
2. There are some
financial transactions computers still
While other corners of Wall Street have been taken over by databases and algorithms, corporate finance is still based on relationships: If you’re raising money or buying or selling your company, you’re hiring a person in addition to a firm.
3. For a banker in the Valley, evoking Gordon Gekko
One of Goldman Sachs’ main Internet bankers in Silicon Valley is named Scott Stanford. And one problem with Stanford, says a Valley executive, is that “his UI,” or user interface, is “off-putting.” Pressed for details, the executive mentioned Stanford’s “slicked-back hair.” It’s a silly critique—but tech people can be as superficial as anyone, and seeming overly smooth can be tough to overcome.
4. Being a geeky
banker, though, is not
a bad thing.
Starting with LinkedIn’s IPO last May, Morgan Stanley went on a tear in tech banking, winning big deals with Pandora, Zynga, and Groupon. Its lead Internet banker is Michael Grimes, who has degrees in computer science and electrical engineering from Berkeley. He’s described as “incredibly hardworking” and “honest, direct, and smart” but also “weird” (one V.C. mentions Grimes’s alleged habit of playing video games until 5 a.m.) and “a dork” (a Valley executive tells of the time Grimes received a call from a client in the middle of a conference room in which lawyers, bankers, and accountants were working around a table drafting a financing document; instead of excusing himself, Grimes slid under the table and continued the conversation, murmuring away as the drafting session ostensibly continued above). Most of the tech CEOs, board members, and investors that Grimes woos are geeks, so it helps that he’s one too.
5. Expertise has
currency in the world
of pop-up empires.
Before LinkedIn’s IPO, Grimes and his team did favors for the company’s executives—analyzing parts of their business, helping them with their finance operations. Morgan included in its pitch for the IPO a list of all the work it had already done for LinkedIn gratis, giving it an edge on Goldman.
6. Bankers are
In the fall of 2010, Facebook COO Sheryl Sandberg put on a charity benefit for Cambodian human-rights activist Somaly Mam. Suddenly lots of Morgan and Goldman bankers developed a keen interest in Somaly Mam.
7. Tech executives will make deals with the devil. Preferably, these deals
will stay secret.
Before losing LinkedIn to Morgan Stanley, Goldman did a deal with Facebook that might have put it in pole position for Facebook’s IPO. Then it all went to hell.
On January 2, 2011, a New York Times article co-written by Andrew Ross Sorkin reported that Goldman was set to invest $450 million in Facebook and would offer select clients a chance to invest up to an additional $1.5 billion via a private stock offering, brokering early access to a company that everyone assumed would ultimately go public at a spectacular price. It was a coup for Goldman, still bruised by exposés by Matt Taibbi et al. But the Sorkin piece made public a deal that was supposed to stay hush-hush.
Goldman hastily e-mailed clients announcing the offering—and was deluged with inquiries. With the disclosure of the deal risking scrutiny from the SEC for violating a rule against hyping private placements, Goldman then said that it was pulling the offering for U.S. clients; instead, it would place the shares internationally. But you can’t offer an early stake in Facebook and then revoke the offer without pissing off customers.
Facebook execs were taken aback by the animosity for Goldman that the episode stirred up. Their reaction, according to an observer: “Oh my God, we’ve gotten in bed with the vampire squid.”
8. Phones make
There’s a tantalizing conspiracy theory to Goldman’s Facebook debacle. Before Facebook kicked off the Goldman transaction, the story goes, CFO David Ebersman called Morgan Stanley and JPMorgan to give them the heads-up. Knowing the headaches it could cause Goldman, one of these bankers called the Times’ Sorkin and tipped him off. Goldman likes this version. The idea that it would be so ham-fisted as to blow up its own deal is mortifying.