Above the Noise: One Facebook number to watch - 23,263,320,127
The US stock markets are closed for the week and the press and public are left to ruminate the long-waited IPO of Facebook. I am no exception; I watched it with fascination. The number that has really struck me is 23,263,320,127 - but I will get back to that shortly. To all the skeptics about the Facebook IPO and their claim that it signals everything that is wrong with our cilivization today, I want to highlight why it is about capitalism, optimism, entrepreneurship, value creation and a huge technological achievement.
Historical trading volume on first trading day
The Facebook IPO had it all. High expectations like New Year's Eve, the largest tech IPO in history, drama in setting the opening price due massive opening retail bids and the battle by the underwriters to keep the share price above the USD 38 per share IPO price (see chart below). All fascinating, but one thing stands out. During the trading day investors traded Facebook shares worth USD 23,263,320,127! This is a crazy number. To set it into perspective investors traded Apple shares worth USD 13,976,425,964 Friday on what was actually one of the busier trading days for Apple. It tells you the depth of trading in Facebook shares. From a technical perspective it was tough job for NASDAQ OMX and it caused some problems. Nevertheless, in the end they managed it and showed why the US stock markets are the only ones that can handle such huge capital market events.
Source: Bloomberg L.P.
From a more philosophical point of view, the Facebook IPO connects a lot of retail investors with capital markets, which is something good as capitalism is under attack from politicians and the ordinary man. The idea that our capital pool can be funneled like blood through the veins of capital markets into organisms like Facebook is fascinating. From a historical perspective it is through these large IPOs that businesses get the capital needed to embark into bold and risky expansions to the benefit of all.
Silicon Valley's ecosystem will prosper from Facebook's IPO
A great thing that will come out of this IPO is the liquidity event for many earlier investors that are now getting paid for their earlier deployment of risk capital. All this capital returning to venture capital and seed investors, current and former employees, will likely flow back into Silicon Valley and new risky ventures. This is how the Silicon Valley ecosystem works.
In addition, I heard from some US tech commentators yestday was that Facebook is now the platform or facilitator for more than 9 million businesses around the world. Many new companies don't bother with their own websites any more. They have a Facebook company site. It is free, it scales and it gives access to 900 million people if you can leverage them. Never in history has it taken less capital to get started with a new business venture where you can reach a global market within a few months if you are bold enough. If that is not an achievement for the world, I do not know what is.
Let me finally share some pretty awesome information about Silicon Valley (see below) that highlights why the Facebook IPO has to be seen in a broader picture than the (presumably) overvaluation and hype. The IPO is connected to all the good things coming out of Silicon Valley:
Startup Throughput: The Silicon Valley startup ecosystem is 3x bigger than New York City, 4.5x bigger than London, 12.5x bigger than Berlin, and 38x bigger than Boulder.
Startup Success Rate: The Silicon Valley ecosystem has proportionally 22% more companies that make it to the scale stage than in NYC and 54% more than in London.
Availability of Capital: On average Silicon Valley startups raise 2-3x more money in the first 3 stages of development: Discovery, Validation, and Efficiency. But in the scale stage, compared to Silicon Valley, New York City startups raise 27% more money and London startups raise 30% more money.
Job Creation: In the Efficiency and Scale stages, Silicon Valley startups create 11% more jobs than NYC startups and 38% more jobs than London startups.
Facebook will inspire other entreprenuers
Another thing we can hope to see from this IPO is more risk taking; because we need it badly. Hopefully young people around the world will look at this IPO and say "Yes! if Zuckerberg can do it, we can do it!" and go into computer science, mathematics, physics, cryptography and electrical engineering, eventually to start a business. To some extent we are living in times that remind us of the 1930s (without the starvation) with mass mistrust in the economic and political system. We need hope and I am telling you something I read from the leading scientist in robotics technology. It is not politicians, but entrepreneurs who are willing to risk their marriage and entire savings to breathe life into their ideas. We should celebrate Facebook, regardless of the current rhetoric.
We desperately need more entrepreneurs that see things differently, as the August 3 1997 Apple commercial says. Watch the short commercial if you have not seen it before.