What we forgot to ask: A thought on Facebook, IPOs and building companies

We all - even some of our most trusted news sources - forgot to ask one important question about the hottest topic of the day. Let me explain.

If you follow the news in the technology industry or even just live somewhere like silicon valley, it was hard to escape the endless discussion today about Facebook's IPO filing. Both the news media and the social media were all a-twitter (pun intended) with both news and speculation.

There was the usual fascination with just how much money would be raised, what that made the company's valuation, how much money key executives earned and just how rich they and all of the pre-IPO employees would become on the day that the stock starts trading. And in the most self-referential of ways, the discussion largely took place on Facebook. (remember when we were all tweeting about twitter and tweeting? Or, wait, are we still?)

Then this article from the august publication The Wall Street Journal showed up. It claimed to contain "everything you need to know about the Facebook IPO." But it didn't. Nor did any of the other sources I've seen so far (anyone care to correct me? I hope I'm missing something...).

We forgot to ask:

Why do they want the money?


For what do they intend to use the money?

Before the dot-com boom made IPOs the stuff of legend and the companies akin to movie stars, this was the question on which investors focused. It told us if we chose to invest in the company's equity (or debt) issue, whether there was a reasonable chance of realizing the kind of return we would expect for the risk we were incurring by making the investment.

In the 1980s, when a semiconductor company wanted to raise money, it generally asked for funds to do things like I build factories (fabs) or hire engineers or buy advanced equipment. All of the seemed like reasonable requirements of growing that kind of company.

One can imagine (I have not read Facebook's filing) that Facebook might need new data centers to handle traffic, or to hire engineers to build all the cool stuff they want us to envision. Do they not have enough free cash flow to do this? (I'd ask the same of Apple if they wanted to raise money in the market - can they not just use their enormous cash horde?).

The filling (as so many have discussed) shows that Facebook is hugely profitable and throws off more cash than most companies will ever see. Do they need the additional $5-$10 billion on top of that? I don't know. It just doesn't say.

I posted this question to my own Facebook wall earlier today, and one speculator suggested that the main reason was to make the executives and all the pre-IPO employees rich (and, presumably, liquid). This idea is cynical, certainly, but given the environment, the tendencies of the company and it's founders and the current market environment (along with lack of news media scrutiny), it might be possible.

In fact, one news report (courtesy of KNTV, the San Francisco NBC affiliate) reported that making these people liquid would result in a significant economic boost to silicon valley, including increasing housing prices in some towns by as much as 16%.

Now, I'm not an investment professional (and this is not investment advice) but if I were to consider investing in Facebook, I'd want to know why they want my money. And I would or want the answer to be "so we can all be rich." I don't begrudge the folks at Facebook their wealth, but I also hope that this IPO is not just a wealth transfer mechanism (taking from me to give to them).

And if Facebook doesn't really need the money, why issue shares at all? Being a public company come with huge costs and overhead. Is having the money worth all that?

Whatever the purpose Facebook states for their soon-to-be-acquired funds, please tell me when we stopped asking - or, for that matter, caring?

Is it more important, as one comment on my Facebook post suggests, to be a big hit in the news (on Facebook?) or to build a company worthy of investment?

What do you think? Will you buy into Facebook? Does it matter to you how they use the money, or if they need it at all?