The Facebook pre-IPO frenzy: a personal account

The WSJ had a very interesting article last May which told the stories of various people and their intention to buy shares of Facebook either in the IPO or before it in the secondary market. One of those stories is about someone who tried to buy shares via Sharespost. it gives some insight about how potential buyers were bidding on shares in a private company, without having access to any company information and without having a pre-existing relationship with the company. It also suggests that Sharespost was not very strict about enforcing the ‘accredited investor’ requirement for buyers on their site. This potential buyer is quoted saying that ‘between his 401K and an IRA fund and the college savings, (he found a way) to squeeze together the $100,000 minimum (transaction size) recommended by SharesPost’. That doesn’t sound like someone with at least $1M in assets or $200k in income…  While Sharespost did seem to have a close relationship with him: “Jim, I’m gonna be honest with you, you’re not gonna get it, very rarely does it sell for the minimum,” Mr. Supple says he was told by his SharesPost broker.

Here is the full excerpt:

Rockville Centre, N.Y.—Jim Supple was driving with his daughter Jade last autumn, when she turned to him and said, “Daddy, can I buy some of the Facebook company?”

Mr. Supple, 47, had been teaching Jade about investing in the stock market for years. He started putting money for her in stocks like eBay and Disney when she was a baby. But the request still took him aback. “How do you know about buying Facebook?” he asked.

“I saw in the news that they were going to be selling parts of the company,” she responded. “Can we buy some?”

Since then, Mr. Supple has been trying to find a way to take $25,000 he has saved for her college fund and purchase Facebook stock. “She doesn’t need this money for another eight years,” says Mr. Supple. “If it goes the Google route, I’ll be in good shape.”

Although he thought Facebook was a strong investment, Mr. Supple had been burned before, having lost some money in a Ponzi scheme, he says. He wanted to be sure that he was being more careful this time before betting so much on one company.

On Jan. 17, Mr. Supple tried to dive in. Two former Facebook employees were selling 70,000 shares in an auction on SharesPost Inc., one of the secondary markets for Facebook shares. The bidding started at $31 a share. He bid $32.01. “Jim, I’m gonna be honest with you, you’re not gonna get it, very rarely does it sell for the minimum,” Mr. Supple says he was told by his SharesPost broker.

Mr. Supple works for a Manhattan-based company called SNAP Interactive that creates a software application that allows singles to go on Facebook and find dates. Over a Jan. 18 dinner of burgers and beer at the New York steakhouse Del Frisco’s, Mr. Supple asked his boss, Cliff Lerner, what he thought about buying up Facebook in the secondary market.

“You know, there is a very high minimum to get into the secondary market,” Mr. Lerner cautioned Mr. Supple. Mr. Supple said he could figure out a way, between his 401K and an IRA fund and the college savings, to squeeze together the $100,000 minimum recommended by SharesPost. “Am I out of my mind?” Mr. Supple asked Mr. Lerner. “No, I think you’re gonna kill it in this thing,” responded Mr. Lerner.

Mr. Supple lost the SharesPost auction. It closed on Jan. 20 for $34 a share, less than $2 above his bid.

Just two weeks later, Facebook filed for its IPO with the Securities and Exchange Commission, driving the price of secondary market shares up drastically. The next auction was $44 a share, too expensive for Mr. Supple. Mr. Supple turned his energy away from the secondary market and began plotting how to buy shares on the day of the IPO, or shortly after.

On April 9, just after the roadshow kicked off, Mr. Supple said he was getting concerned about the frenzy and rethinking his plan to buy on the day of the IPO.

“Here in New York, it’s on every single news channel, it’s in all the newspapers that the roadshow has started and [Facebook Chief Executive Mark] Zuckerberg was here in New York,” he said at the time. “I’m going to sit on the sidelines on IPO day,” Mr. Supple decided. “We’re going to have to wait until the smoke clears.”

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