There have been a few really big social media IPOs already this year and Facebook hasn’t even been launched yet. Is this good or bad for the market?
That’s the $64,000,000 question everyone is asking.
Is there true value in the social media companies currently going public or all they are flash in the pan with little substance. For some, like Facebook with its 750 million users and growing, they have some real power to make changes, grow and become even more profitable than they already are. For others, the future looks bright but without a few strong years of growth behind them it’s just too hard to know what they will do.
The first thing to ask yourself before buying one these stocks is: Do I understand how they make money now and will make money in the future?
Just as folks did when Ford went public, or IBM or even Google, investors needed to see they had a viable business model that would generate revenue. And even that is no sure sign of success.
Social media is definitely a force to be reckoned with and it is not going away any time soon. Whether or not you should bet the farm on the next big social media IPO, well, that’s another story.
OK, I’m generalizing here, given it’s hard to declare startups a loss for investors, particularly when greentech companies seem to have a lot longer time frame to achieving revenues or getting an exit. But clearly, in some cases it’s the same venture firms that will be collecting on the latest social media IPOs — Groupon, Pandora, Kayak, potentially Zynga — that have also led some of the more high-profile, and capital-intensive, investments in greentech firms.
Take New Enterprise Associates (NEA), which will be one of the big winners from the Groupon IPO. According to these calculations in the Wall Street Journal (taken from Groupon’s S-1), NEA put $4.8 million as the first institutional into Groupon and then followed that up with a $10 million investment in November 2009. For NEA’s $14.8 million, the firm currently holds 14.7 percent of Groupon Class A stock, and that’s after NEA already cashed out $70 million in December. If Groupon goes public, that percentage could be worth $2 billion, or a 135 x on-paper multiple (the article posits it could be worth up to $3.4 billion on paper). NEA’s entire fund (for Internet, mobile, cleantech etc.) was $2.5 billion.
Now look at some of NEA’s over two dozen investments in greentech. The firm might have a few wins, like if electric car maker Fisker Automotive goes public, and Opower seems to be doing well. But there are greentech startups in its portfolio that are pretty capital-intensive and also not clear winners like Bloom Energy, HelioVolt, GridPoint, and Konarka, to name a few. Thin-film solar company HelioVolt has been stuck in a pre-commercialization phase, despite raising over $100 million, and last I heard, NEA investors were openly trying to sell it. Konarka is also stalled in a perpetual R&D phase, while GridPoint has raised a lot of money and hasn’t seemed to secure that many paying deals. Nine-year-old Bloom Energy has raised at least $400 million, and I’ve heard rumors that it’s running out of money for more expansion, though if the company goes public and the IPO is successful, NEA could do well on it.
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