Photo: Bloomberg TV
Y-Combinator cofounder Paul Graham sent out a letter to all the CEOs in his portfolio companies, warning them that because of the poor performance of the Facebook IPO, “bad times” may be ahead.He said that it could make fundraising harder, and that it will cause some spend-happy startups to be “hosed.”
Here’s the thing, though: fundraising has always been hard, and spend-happy startups will always be the first ones to crash and burn.
And, the fact is, the Facebook IPO – despite the stock’s performance since – is actually going to make startup fundraising even more frothy in the Valley.
There are two reasons why.
- The first: Facebook is a ~$60 billion company, created in under 10 years, thanks to hard work and the Silicon Valley startup funding system. It’s a huge neon sign of success that will attract new money and new entrepreneurs, not a failure that will keep it out.
- The second: The Facebook IPO itself actually performed WONDERFULLY for Facebook insiders and investors.
It raised $16 billion for Silicon Valley!
$6 billion of that went to Facebook, which will use some of it to continue acquiring startups at a fast rate. That means more healthy exits to keep investors optimistic.
The other $10 billion went to employees and Facebook investors.
Many top executives will use that money to invest in startups. Already, one of them, Chamath Palihapitiya, has founded a VC firm that will invest most of its money on startups built on top of Facebook’s “social graph.” Dozens of other Facebook employees have already become active angel investors.
Facebook’s VCs will return much of their share of that $10 billion to limited partners – College endowments, pension funds, etc – and the people running those things will say: “HOLY MOLY, more returns like that, please!” and they will re-invest in Silicon Valley venture.
The performance of Facebook’s stock since the IPO will change the course of some Silicon Valley companies, mostly later stage companies facing some of the same choices Facebook did for the past couple years: should they IPO (scarier, now), should they increase monetization efforts (yes!), should they say yes to Google’s big offer (yes). Twitter, for example, is now looking less like a long term independent company, and more like an acquisition target for Google or maybe even Microsoft.