Ok, I guess now I can ask the question my publicist urged me not to ask two weeks ago. You see the snake oil is still flowing and I want to know why we never learn! The question is…
What is the thing about Facebook that makes it worth $108 billion since it is entirely based on intangible values?
Well it looks like the jury is in and the answer is nothing. Sometime, relatively soon people will wake up and realize that the problem with the Dot-Com successes are that unless they can create a tangible and necessary value proposition in a down economic period, then the value of a company like Facebook is not just speculative; it is simply ludicrous.
Worse, I suspect there is hidden in the recesses of this offering the same attitude that was pervasive in the last Dot-Com bubble burst. The most important thing to the original investors, the Venture Capitalists that funded this company is not value it is simply liquidity. The good thing for these investors is, once again what is driving the public is perceived value not real value. In effect, what a lot of the “public” is willing to pay for does not have to equate to real value—ever.
You see, venture capitalists are paid to return value to their investors, not the future public owners. P. T. Barnum said it best, “There is a sucker born every minute!” So to all those that purchased this snake oil, there is a Latin phrase you should learn, “caveat emptor.”
This has been a carefully orchestrated dance with the devil ever since the first big money went in the door. Rumors of government intelligence connections have been rampant for years, mostly as water-cooler as excuses to try to justify the ever climbing stratospheric price, but the reality has been a very simple one. It is the same thing we who have lived in or near this tech-money world have seen for years. It is the siren song of untold riches, if you just buy a few of the baubles, these simple slips of paper, that will grow, that simply must grow don’t you think. These that just can’t fail because after all it is “Excite@Home (oops that’s a bad one), or it is AOL (opps again) or it‘s Netscape (oops), I mean, you know what I mean, because, you know, they simply must grow to ever higher levels—its technology after all. If you get in now you too can be the next “Tim Drapers, or Brook Byers.” Just buy a few, for a small investment, a pittance really, this dream can all be yours!
I live right in the promised land of private equity investors—Silicon Valley, CA. I have spent much of my career around VC’s and Angel investors. Private Equity is a great thing. Without it much of the things we take for granted today would not even exist. It is the basis for the growth economy we have had for years. Along with Real Estate it has formed the basis of the so called FIRE economy that gave us the rapid rise in currency from a mere $500 billion in 1972 to over $16 trillion today. And while many of the dollars created went to real products, tangible products, things you could touch and feel in your hands, much recently has gone to companies based as much on perceived value as any tangible calculation. In this modern world there is no regulation that will protect people from the avarice of wall street, nor should there be. The onus is on all of us to keep both of our eyes open and both hands on our wallets.
Alas, now will come the predictable filing of lawsuits by those who will blame everyone for the unrequited love, the incredible get rich quick scheme that was the Facebook juggernaut. Here’s a news flash, you have no one to blame but yourself. You should know that if it sounds too good to be true it is. Get a freak’n clue! This was a liquidity game, played by major league players from the get go and Mr. Barnum definitely ruled this day and many people will likely soon feel like they got caught at a church picnic with their pants down out behind the barn with Mary Sue.
Now, those who are watching this intangible value-based company decline by the day can pray that it pulls a trans-formative move and, like Amazon did years before, maybe become a true value supply chain player. Years ago there were those of us who saw the original Amazon business plan and just knew then that the original ‘no brick and mortar warehouse, drop ship from publisher’s model’ was not going to work. All of us then learned a valuable lesson. The lesson we learned was that it was liquidity, not value, which was the play.
As my 13 year old son now says, “you all got schooled!” You know what? He’s Right!