There has been a lot of noise about the massive number of Facebook shares that are going to be released from lock-ups in the next four months.No one knows exactly how many of these shares will be sold.
But given the humongous number of them—2+ billion shares, or about 70% of Facebook’s shares outstanding—it’s a bit like standing at the base of Hoover Dam wondering if the floodgates are about to be opened.
The potential deluge will begin Thursday morning, when 268 million shares (10% of the shares outstanding) will be released.
These shares are currently worth $5.5 billion, and most of the folks who own them are very much in the money (meaning they bought them when they were worth much, much less).
On the one hand, these folks may be reluctant to sell, on account of the fact that Facebook stock is worth about half of what it was worth three months ago.
On the other hand, having seen what has happened to Zynga, Groupon, and other erstwhile Web 2.0 stars (utter devastation)—and having waited years and years to get liquidity in Facebook—these folks may rush for the exits the instant the doors open.
To get a better sense of how much stock might hit the market, it helps to look at the specific folks who will be able to sell and then think about their motivations.
The Wall Street Journal’s Telis Demos has put together a handy and comprehensive list of these folks and also added some thoughts about what they’re likely to do. Using this list as a starting point, I’ve added my own thoughts below.
Here are the Facebook insiders who will be able to start unloading stock on Thursday morning. The names are in black. Their likely motivations and actions (my opinion) are in italics.
THE POTENTIAL SELLERS
Peter Thiel — 27.9 million shares. Peter Thiel was Facebook’s earliest institutional investor. He sold $638 million-worth of stock on the IPO, so he has probably satisfied his immediate liquidity needs. He has also, however, gotten a return on his investment that was likely beyond his wildest dreams. There’s no sense in being piggish and over-concentrated, so Thiel will likely continue to reduce his Facebook stake over time. My prediction, therefore, is that he’ll sell some between now and the next lock-up release, and then move out of a lot of the stock over the next year.
Accel Partners — Class A: 135.7 million; Class B: 7.9 million. Accel was Facebook’s first big institutional investor, and it has made an absolute killing. Accel sold $2.1 billion-worth of stock on the IPO, so it has also satisfied its immediate liquidity needs and locked in an astounding return for its limited partners. That said, Accel has been invested in Facebook for a long time, so it will likely continue to scale down its position over the next 18 months. My prediction, therefore, is the same as for Peter Thiel: Accel will sell some stock between now and the next lock-up release and then scale out over the next year.
DST Global Limited — Class A: 5 million; Class B: 80.6 million. DST, the big Russian investment fund, also made an early bet on Facebook, along with a huge later one. The later bet, at a valuation of $50 billion, is barely in the money. DST sold $1.7 billion of stock on the IPO, so it’s in great shape, having locked in humongous gains. DST will probably sell the rest of its early Facebook bet and keep the later one—unless it thinks that Facebook’s prospects are headed down the drain.
Goldman Sachs — Class A: 41.6 million. Goldman made a huge bet on behalf of itself ($450 million) and its clients (nearly $2 billion) at $20.85 a share two years ago. Goldman dumped $923 million worth of stock on the IPO, so, as always, the firm and its clients are doing just fine. But with Facebook’s stock now having fallen to the value at which Goldman made the investment, the firm has a tough decision to make. If it dumps stock at this level, it will look like a chump. My prediction is that, having already banked nearly $1 billion of profit for itself and its clients, Goldman will probably let the rest of the investment ride. (Unless, again, it thinks Facebook is headed down the tubes).
Elevation Partners — Class B: 35.5 million. Elevation is a Valley investment firm that has struggled of late, with the exception of the Facebook investment. Elevation took $175 million off the table on the IPO, but it will likely want to dump the rest of its stake quickly, to lock in the gains. So Elevation may distribute its remaining stock to its Limiteds on Thursday morning.
Greylock Partners — Class B: 29 million. Greylock has also made a killing on Facebook, and it sold $289 million worth of stock on the IPO. Like the other VC firms, Greylock will likely continue to gradually scale out. It probably won’t sell Thursday morning, but it also likely won’t hang around for the next lock-up release deluge.
Mail.ru Group Limited — Class B: 36.8 million. Another Russian company that got in early. Mail.ru cashed in to the tune of $745 million on the IPO, and it will likely dump the rest of its stake very soon.
Mark Pincus — Class B: 4.3 million. Pincus, the CEO of Zynga and an early Facebook investor, cashed out big from both Zynga and Facebook in recent months. He’s clearly getting liquid. So he’ll be rushing for the doors.
Meritech Capital Partners — Class B: 33.4 million. I don’t know much about these folks. They’ll probably dump.
Microsoft Corporation — Class B: 26.2 million. Microsoft will likely hold on. This is a strategic investment for the company, and it doesn’t need the cash.
Reid Hoffman — Class B: 3.8 million. A legendary Silicon Valley VC and entrepreneur, Reid doesn’t need the cash, and he’s a big Valley and Facebook bull. He’ll probably ease out over time.
Tiger Global Management: Class A: 1.96 million; Class B: 32.8 million. An aggressive hedge fund. Despite having already banked $722 million on the IPO, they’ll almost certainly dump.
Bottom line, some of these Facebook shareholders are almost certain to dump some stock in the next few months.
Maybe not Thursday morning, but soon.
And with ~1.7 billion more shares set to hit the market by December, they probably won’t dilly-dally too long.