What’s the easiest way to make money in a gold rush?
Answer: Sell shovels and let people dig a hole for themselves.
Even if there’s no shiny stuff in the ground at all, you’re not the one stuck in the mud.
That’s what’s going on with Facebook right now, reports BusinessWeek.
Facebook is so hyped right now that people are creating companies that exist for the sole purpose of holding Facebook stock and then selling stock in those derivative companies.
One fund, EB Exchange, requires a minimum investment of $100,000 – with 5% going straight into EV Exchange founder Larry Albukerk’s pocket. If Facebook ever IPOs (reminder: it probably will, but it might not), Albukerk gets another 5%.
Albukerk isn’t the only one getting in on this cottage industry, of course. Some others include Felix Investments LLC and GreenCrest Capital LLC, which is raising a $100 million fund.
What’s risky about all this is that despite all the investors, Facebook remains a private company. Meaning, it doesn’t have to tell anybody how well its business is doing. Reports say the company’s revenues will reach $2 billion this year, but they are all cited to unaccountable sources. The truth is, growth could be much slower than it should be at a company with 500 million users and investors would have no real way of knowing.
Albukerk seems plenty aware of this.
“I don’t necessarily know if it’s a good investment or not — I just know people want to invest and we provide a means for them to do that.”
The SEC has rules to prevent this kind of investing, but Facebook is very carefully restricting how much stock it gives out in order to avoid going public.
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