Facebook’s stock is off more than 30% since its IPO. It has had one of 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 startup investors, Y-Combinator’s Paul Graham, wrote an email this week to dozens of CEOs in his portfolio warning that because of 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 many will 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 must be thrilled with their investment’s outcome.
But Graham is right about one thing: Facebook’s post-IPO flop has changed the landscape.
Specifically, it has demonstrated that the public markets will not overvalue social media companies with big user numbers and limited revenues.
Here is a brief rundown of companies that face a very different set of circumstances today than they did on May 17, before Facebook’s IPO:
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 was impeccable timing. It means that in the short term, Facebook’s poor IPO will not change Pinterest’s plans or execution. In the long term, however, Pinterest will have to be a different type of late stage startup than Facebook was. It will have to be stronger on monetization and mobile.
Twitter’s stock is down 15% on private markets since Facebook’s IPO. It has lots of users, but small revenues. Its IPO prospects look much dimmer 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. Like Facebook 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, is proving that it’s hard to make money showing ads on a product used for communication. Facebook’s IPO just proved that the public markets are aware of this problem. Airtime will face it soon enough.
Path, a startup by ex-Facebook exec Dave Morin, is supposed to be the mobile-only Facebook. That is not as attractive of a proposition for 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 its users, has seen its stock crater since Facebook’s IPO. There’s really no logical reason for that. It’s just the opposite of the halo effect.
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