Facebook’s Initial Public Offering

Table of contents

The reasons for Facebook to go public

In the beginning, Facebook, through its founder Mark Zuckerberg, was unwilling to go public and refused a number of buyout offers. However, it reached 500 thresholds after accepting private investments from firms, which eventually made Zuckerberg decide to go public. The Securities and Exchange Commission (SEC) requires that private companies reaching more than 500 ‘shareholders of record’ must abide by the same requirements of financial disclosure undertaken by public companies (Sloan, 2012).

It is clear that Facebook’s decision to go public through an initial public offering (IPO) was not the same as the common reasons of firms when they undertake the same decision, which is to draw more revenues (Palmiter, 2008). However, in the long run, Facebook also aimed to access external financing as a result of IPO (Sloan, 2012).

The reasons for companies to go public beyond their need for more money are enhanced financial condition, ability to cash out, improved corporate reputation, and improved opportunity for future acquisition (Peng, 2012).

The dollar objective of every company in relation to the amount expected to be raised via IPO

The dollar objectives of companies entering IPOs for increased revenue purposes are to develop reserves and increase external funds (Vedavalli, 2007; Sullivan, 2007), access capital (Dana, 2004; Ernst and Hacker, 2012), improve the financial condition, increase shareholder value, and improve capital to sustain growth (Ernst and Hacker, 2012).

In Facebook’s case, its stock price dwindled as there were concerns about its overpriced IPO and long-term business outlook and lost around $ 25 billion in value (Kuratko, 2012).

The expected use of the money raised by IPO

One expected use of the money raised by IPO is retiring from debt, in which, it is necessary to pay close attention to the company’s financial data and overall growth prospects. Another is the enjoyment of the proceeds by the owners of the shares, especially for the sale of secondary shares. Moreover, sold primary shares (newly created shares) from an IPO increase revenue to the companies’ accounts (Khurshed, 2011).

In the case of Facebook, the company raised a large amount of money, which has amounted to $ 18 billion. In actuality, there was no increase in the number of shares it sold to the public; instead, most of the new shares were from Zuckerberg, and such was considered not a good sign (Khurshed, 2011).


  1. Dana, L. (2004) Handbook of research on international entrepreneurship. Glos, UK: Edward Elgar Publishing Ltd.
  2. Ernst, D. and Hacker, J. (2012). Applied international corporate finance. Berlin: Verlag Franz Vahlen GmbH.
  3. Khurshed, A. (2011). Initial public offerings: The mechanics and performance of IPOs. First Edition. Hampshire: Harriman House Ltd.
  4. Kuratko, D. F. (2012) Entrepreneurship: Theory, process, practice. NJ: John Wiley & Sons.
  5. Peng, M. W. (2012). Global strategy. Mason, OH: Cengage Learning.
  6. Sloan, P. (2012). Three reasons Facebook has to go public. Retrieved on December 3, 2013 from http://news.cnet.com/8301-1023_3-57368449-93/three-reasons-facebook-has-to-go-public/
  7. Sullivan, L. R. (2007). Historical dictionary of the People’s Republic of China. Maryland: A Scarecrow Press, Inc.
  8. Vedavalli, R. (2007). Energy for development: Twenty-first century challenges of reform and liberalization in developing countries. London: Anthem Press.

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