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Hey acquired listeners, a note about this show before we get started. Ben and I recorded this episode the night before the 2016 election day in the United States. At the time, the biggest change we saw coming was adding a new type of content to acquired in analyzing IPOs, which we introduced in this episode. Two days later, we woke up to a very different world than the one we were expecting. Reflecting on what's happened and the past few months of our show, we wanted to say two things. First, we apologize for our cavalier attitude towards this election cycle over the past couple episodes and are glossing over of the clearly very real problems and deep divide in America that it represented. In the Skype episode, I pretty glibly compared the AT&T Time Warner merger to make America great again, arguing that any reactionary force is, quote, on the wrong side of history and cannot be relevant in a changing world. I was wrong, that sentiment is wrong, and it's insensitive to the very real pain that a lot of people are obviously feeling out there on both sides. Second, looking back on the episode, we think it actually presents a relevant parable for our country right now and we hope some important lessons for the technology industry going forward. For all its wonderful aspects that we celebrate on the show, there is no doubt in my mind that the tech industry shoulders a lot of the responsibility for the current divide in America and especially in its contribution to wealth and equality. Likewise, for all the wonderful aspects to the Facebook IPO story that you're about to hear, there is a very clear dark side as well. Facebook shareholders, investment banks, and institutional investors raked in billions of dollars at the expense of public retail investors who lost their shirts. At the same time, Facebook's perseverance and their determination in overcoming what were massive existential challenges to their business model as you'll hear about in this episode at incredible speed. We think can be an inspiration to us all right now on how to move forward when it doesn't look like that's super possible. We hope you'll listen to this episode with that in mind and think about how you and we and the technology industry as a whole can do better in serving everyone in this country and in the world. Thanks for being on this journey with us. We're sorry for our shortcomings. We're going to keep working really hard to do better and with that onto the show. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Welcome back to episode 25 of acquired, the podcast about technology acquisitions. Today's episode we're trying something new. We're piloting a new idea, analyzing IPO's in addition to our normal acquisition format. When we started the show, our goal was to understand what made an acquisition go spectacularly well. And over the past 24 episodes, we started zooming out and asking ourselves exactly why that is. Both David and I are really trying to understand how to create big and during companies and we know that's why a good chunk of our audience listens to the show. Oftentimes you can have these huge successful acquisitions, but that's not the only goal. The goal for us and for many entrepreneurs is to create lasting value. As we thought about what direction we wanted to take the show, it became more and more clear to us that we should be looking at companies that don't get acquired, but go all the way to going public. And really, these are even a better example of building hugely valuable companies. So today we're starting with a monumental IPO in recent history, Facebook. Oh yes. I'm really excited for this and I hope you guys are too. Not that we're going to stop doing acquisitions, but we thought this was as Ben said, just a great direction to take the show. So let us know what you think in the Slack channel by email on Twitter. We love feedback here and acquired. Very true. And in typical, I mean, both of us are very involved with early stage companies in different facets and in kind of typical customer validation and customer development format. Be harsh. We love all your criticism and we want to make acquired the best show possible if you guys. So helps us make the show better. True that. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders. So we knew there's a natural fit. We know the host of founders. Well, David Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together. And then they say it's like the best curriculum for founders and executives. And really, as we use your show for research a lot, I listened to your episode of the story of Akio Maria before we did our Sony episodes. It's incredible primer. You know, he's actually a good example of why people listen to founders and to acquired because all of his greatest entrepreneurs and investors, they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research. But I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them because in my opinion, the greatest such printer to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple, but Steve was still able to use those ideas. And now he's gone and we can use his ideas. And so I think what requires doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders go check it out. All right. You want to go into IPO history and facts with that. This is an epic one to start with. So I'm going to assume that most of our audience is familiar with the Facebook Founding story. If you're not, we highly recommend you go watch the social network. Or if you'd like a less fabricated version, the David Kirkpatrick book or there's a variety of good resources and we would do a much worse job telling that story here than you can get elsewhere. Yes. Much ink has been spilled on that front. But suffice to say that Facebook was founded in 2004 by Mark Zuckerberg and Eduardo Severin and you McCollum, the forgotten Facebook founder. Just a mock of Moskowitz and Chris Hughes. A whole bunch of stuff happened including turning down several acquisition offers along the way. Most notably a $1 billion acquisition offer by Yahoo in 2006 just when the company was two years old. Sort of foreshadowing Instagram in years to come. I think Mark has talked about turning down that acquisition being one of the pivotal moments in the history of the company. That's the kind of crisis moment in the bathroom. I think there was a point there where he I'll have to check my facts on this and we can do it and follow up. But I think this is the one where it was over dinner and he ended up in the bathroom like looking at himself in the mirror and having this emotional crisis of oh my god am I actually turning down a billion dollar offer. Yeah. Crazy. But he did and Facebook went on to much more than a billion dollars in value. Yeah. So much so that if you google the Facebook IPO and you find yourself on the Wikipedia page there's a whole Wikipedia page dedicated to the Facebook IPO and right in the beginning it refers to it as a quote cultural touchstone. Yeah and that's no joke. I mean it's one of the largest acquisitions of all time. I'm sorry that one of the largest IPOs of all time. Indeed the third largest behind Visa and General Motors but probably happier than those two since those were at least General Motors was post financial crisis when the US government was re-IPOing it up to the bailout. But talk about enduring companies to study. Yeah. So let's dive into it. In the late days of Facebook as a private company which it's been eight years from 2004 until 2012 as a private company it was a frenzy not just inside the company but outside the company everybody and their mother literally their mother wanted to be an investor in Facebook and at the time there were actually two ways to sites that had popped up that would let you do that. There were these these vehicles called a second market and shares post and these were startups themselves that facilitated trading private company stock. Now you had to be an accredited investor to do this. This was before the jobs act and before a lot of the and new equity crowdfunding laws and regulations. Did you have to be an accredited investor to sell or just to buy? Just to buy but employees could sell on these sites and the vast majority of all volume being traded on these sites was Facebook shares in 2010-2011 and this was starting to be a really big problem because now all of a sudden Facebook and other companies that were whose shares were trading on these sites they'd sort of lost control of these shares and they had all these shareholders out there who they didn't know who they were and at the time pre-jobs act the laws were that you had to have less than 500 shareholders as a private company once you had more than 500 shareholders you had to go public. And so this was happening in Facebook more than any other company at the time and in an effort to sort of try and also get under this 500 shareholder rule in 2011 and to be January 2011 Facebook separately did a rather infamous deal with Goldman Sachs that didn't go so well. The first part of the deal went fine and that was that Goldman invested $450 million itself in Facebook that happened but the second part of the deal and that was at a $50 billion valuation. The second part of the deal was that Goldman was going to create a special purpose vehicle that was going to be one single entity and then it was going to market to its private wealth management clients the ability to invest in this special purpose vehicle that was going to be a billion and a half in total and then that would invest that would vehicle would invest in Facebook and so they sent this email out to select private wealth management clients of Goldman saying you know opportunity of a lifetime it was like a like a Nigerian cash scam email that Goldman was sending out to their clients they couldn't even they didn't even couldn't even say the company by name it was a unnamed high growth private company that they were offering the opportunity once in a lifetime an opportunity to invest in. Wow but you throw the Goldman brand behind that and it seems like yeah sure seemed like a good idea at the time and to Facebook too. Well the SEC didn't think it was such a good idea so deal book a New York Times deal book actually leaked scooped that this was happening and after that the the SEC started investigating and Goldman ended up they still ended up doing the deal but they did it with all foreign clients so they decided that it was too risky to have US investors invest in the deal and this was a huge huge moment big egg on Goldman's face and on Facebook's face for what came across as really trying to skirt US securities laws and up until that point Goldman had been sort of top bill in the running to be the bank that would take Facebook public right and this basically killed their chances of being lead left quote unquote on the IPO. And what is for for those of us like kind of not from the industry was lead left. So when investment bankers take a speaking as a reformed investment banker myself when investment bankers take a company public there's usually a consortium of banks that underwrite the IPO but there's one bank that's the leader and that's referred to as being lead left quote unquote which is on the cover of the perspective of the IPO the bank that's at the top and on the left is lead left and they get the biggest allocation of the IPO and it's always a huge battle amongst the big bulge bracket banks for hot IPOs and there was never going to be any IPO hotter than Facebook to be the lead left not only because they'd make a lot of money from it but the prestige associated with that well in theory we'll see what really happened live on for a long time so because of these two things that were happening there was immense pressure on Facebook to finally go public in the 2012 timeframe so late 2011 they start preparing they actually select Morgan Stanley Goldman's longtime rival to be lead left they're deep preparing for the IPO and business is going great for the year of 2011 they ended the year with 845 million monthly active users 483 million daily active users so doing the math on that that's over 50% DAU to MAU ratio which means over half of Facebook's users used it every single day which is just incredible and instilled to this day there's so few products that are like that and not just usage but engagement so they were seeing at the end of 2011 over 2.7 billion likes and comments per day which is crazy and by the time they actually went public in 2012 they amended their S1 filing to include Q1 numbers and in Q1 2012 they saw 3.2 billion likes and comments every single day which those likes and comments numbers they like to put that in there it's like almost an unfathomable ridiculous vanity metric right because there's nothing to compare it to and we really like it's hard to wrap your head around what that even means well but it's engagement right I mean it's like sure people aren't just opening the app they're actually doing stuff in the app great point and and in these days we'll get to this in a second it wasn't so much the app as it was the website yeah on desktop and not only you know things are going really well for Facebook at this point not only do they have these huge use unprecedented user base unprecedented engagement but they are making real money too yeah they were they were profitable by their IPO correct very profitable so in 2011 they did $3.7 billion in revenue and over $1.7 billion in operating income which is really incredible you think of a private startup at that point in time you know people had never seen a private company at kind of this scale of both revenue and profitability right and that's let's see that's a 45.9% operating margin yeah it's it's it's quite good as we were talking about a bit before the show hiring Cheryl Sandberg to build advertising at Facebook was one of if not the best decision that Mark Zuckerberg ever made yeah this is this is worth a quick little story but before March of 2008 Facebook didn't have Cheryl Sandberg kind of at the helm as COO and they had no ad product yeah they're just running banner ads yeah and they had some they cut some deal with Microsoft Mark was totally allergic to you know cannibalizing the purity of the site with advertising and in March of 2008 Cheryl Sandberg came in and her goal and her charter was make the company profitable so when before she joined quote-unquote the company was primarily interested in building a really cool site profits they assumed would follow and so in late spring Facebook leadership team finally agreed that they were going to rely on advertising with the ads quote-unquote discreetly presented and then it was kind of her charter over the next three years to actually build a an in-house competency coming from Google of a real advertising platform and in three years to go from you know essentially nothing like they were making plenty of revenue but it was low quality revenue from banner ads to go from essentially nothing to almost four billion in revenue and almost two billion in profit while totally wild interestingly this is a fun side fact this was the days of the Facebook platform and games on Facebook and particularly farmville and they noted in their s1 filing that Zingo represented 15% of Facebook revenue at the time of the IPO that's a huge risk yeah that was in the risk factors so as as we're alluding to things are going great February 1st the big day the day that everybody in tech has been waiting for they file Facebook files it's s1 which happens now it happens before you go public you file your registration statement the prospectus for for going public in those days it happened even longer before before the actual IPO happens now it's a fairly short time period after some of the changes made in the job's act so February 1st they file Morgan Stanley is lead left banker and then showing how far Goldman had fallen just a year earlier you know they were in the pole position to be lead left they actually get demoted to third so JP Morgan is second and Goldman is third so this was a big big demotion for Goldman and but as we shall see Morgan's being lead left on the Facebook IPO wasn't necessarily the golden egg that the banks thought it was so things are great but there's one one problem with Facebook right now that's that and that problem is mobile yeah so fascinatingly enough in the in their s1 when they're listing the summary risk factors to the business it this one's incredible one of the risk factors is growth in use of Facebook through our mobile products where we do not currently display ads as a substitute for use on personal computers may negatively affect our revenue and financial results so the risk factor they're identifying here is not not that you know we don't know how we're going to monetize the the phone we haven't rolled out phone ads yet it's that the risk is that people start using mobile products more than desktop products and we don't have a revenue model there yeah they literally had no revenue model so two huge two two two aspects to this very huge problem for Facebook right now the mobile problem one is a usage and engagement problem and they had we just talked about this incredible usage and engagement metrics that they had but that's all on desktop on mobile they have mobile apps for Facebook but these are the dark ages of HTML 5 and the misery of the HTML 5 mobile Facebook app which was so slow basically impossible to use and and as a result only about half half to slightly less than half of Facebook's users were active on mobile yeah and and like fascinating to to think about all the implications to mobile being an afterthought like when you when you opened the app the the news feed as we know it today was not one unified news feed where you would see the the same thing on the mobile app that you would on desktop it was like you would see a completely different set of information like a different algorithm determining what you would see served down to you a different way cashed in a different way obviously not nearly as responsive this was you know philosophically they wanted to be able to move faster by dynamically controlling the HTML that was served down without having to recent it to the apps and not making a bet on you know this was as we've talked about on the show the age of the mobile platform wars and iOS going to win are Android and they thought they could be really flexible by having this HTML 5 app that was one app that would get put in a wrapper and shipped to both app stores but yeah it was not working no and it's fun even doing the research for this episode I saw read a bunch of articles about this and I remember doing this most a lot of people rather than installing or using the the app on their phone for Facebook they would go to m dot Facebook dot com and use the mobile web because it was better than the crappy app that they had yeah shocking which and and I mean this was in tech years you know four years four plus years ago four and a half years ago a long time but it's not like the mobile ecosystem was undeveloped at this point in time like there were app like Uber existed right there was no excuse for not having I think Twitter had already bought Tweety so the iOS client for Twitter was exceptional at that time yeah Tweety became the native app and the like to put this in perspective where they had no ability to monetize on mobile at this point and that was the so one half of the the huge gaping chest wound that Facebook had at this point was the abs sucked right and the other half was they had no monetization model they made no money from mobile and to put that in perspective today I think well David I'll tell us the story of of kind of everything along the way Facebook earnings came out a couple of weeks ago and mobile advertising revenue represented 84% of ad revenue for the quarter yeah so that was the third quarter of 2016 as we're recording this today and it's basically the entire business today so the story of how we got there is massively tied up in the Facebook IPO and and actually even just a couple months later after the IPO in in September 2012 Zuckerberg was on stage a tech crunch disrupt that year and he said the biggest mistake we've made as a company is betting on HTML 5 over native in mobile that's how how much over a few short months he realized what a big problem he had wow and it's probably worth before diving back into the story to like set some context on the numbers here so IPO biggest in technology history you know third largest of all time priced at a hundred the market cap for Facebook was 104 billion yep which we'll get into in a sec okay cool yeah why don't you just dive in then okay so we're still on the road to IPO and it's now April Facebook is on its has been working on its road show and getting presenting to investors large institutions who will buy into the IPO and on April 9th 2012 they come out with a rather shocking announcement at the time that we've already covered on this show in one of our early episodes and that is in fact our benchmark of what a great acquisition is they announced that they're acquiring Instagram and we talked about this a little bit on the episode but just a step back again here and put this in the context of how crazy this was that Facebook was had filed their S1 they're in the process of going public and they acquire a company that has 13 employees for a billion dollars that this was just crazy and but but underscores how much how mark and and Cheryl and the team were coming to realize how big of a problem mobile was for them and the entire rationale for the Instagram acquisition was around bolstering their story and their user base in in mobile yeah and I remember trying to rationalize this at the time and talking to friends and I think we've even talked about this on the Instagram episode that you know there were a few things that Facebook held near and dear and one of which was being the the source of platform and identity and that was quickly becoming really important to them to get a foothold in that everybody sort of needed a Facebook as its infrastructure on the internet but the killer app for Facebook was photos sharing it's what got by far the most engagement it was nostalgic all those comments and likes yeah billions every day yeah and so for them to to lose that foothold where like that that's really their core of strength is this is where people share and engage on photos that's a total existential threat especially when everyone's attention to shifting to mobile and they don't have a credible offering there yep and and they actually you know in this time leading up to the actual IPO Facebook was and most companies do amend their s1 their their their registration statement quite frequently as new information comes up and there and they're working through feedback from investors and whatnot and and of course they amend it for this acquisition that they announced and they actually say it's interesting they say in the in the s1 that they intend to continue operating instagram as a standalone entity in product which we talked about on our show but interesting that they actually put that in the s1 for Facebook's IPO but then they also say this is this is after they talk about instagram but in the same paragraph we believe that mobile usage of Facebook is critical to maintaining user growth and engagement over the long term and we are actively seeping seeking to grow mobile usage although such usage does not currently directly generate any meaningful revenue this is how important they're they're realizing it's becoming also interesting side note that I found while I was doing research here there was a break up fee on the instagram acquisition of 200 million dollars so if for whatever reason the acquisition didn't go through Facebook would have paid instagram 200 million dollars wow wow that's enormous because instagram like a lot of the time you're gonna have a break up fee like that because of the incredible cost that you incur by you know opportunity cost and negotiation and like the time usually it's you know you see those things often when it's like a public company acquiring another public company it's impacting the stock price but this was a 13 person startup right and it's not like when we were talking to zillow cfo Kathleen Phillips how like the the negative signal that it could send to the market to trulias shareholders and to trulias you know incredible number of stakeholders from the advertisers to all the people that depended on them like instagram didn't have a lot of stakeholders instagram didn't have a high opportunity cost of other things they could be doing the tune of 200 million dollars it's not even had more than a few people like working on the acquisition it was Kevin and Mark talking and some very excited vcs on their board yeah yeah no kidding wild that it's that high so things keep keep moving along in the process on may 9th Facebook files the sixth amendment to its s1 we're gonna come back to that in a minute things keep going along and mid may they decide that they're gonna set may 18th as the day friday may 18th as the day that Facebook goes public so the start of that week though something that there's there's an inauspicious start and that's at the beginning of the week gm that we've already talked about on this episode general motors announces that they're gonna stop all advertising on facebook because it's not actually working that well for them yeah they've been spending 10 million dollars a year with Facebook and they wanted flashier ad units i mean they're they're major complaint was look on all these blogs they're letting us take over the whole back page we can slide stuff in from the sides we can get this big header that pushes all the content down and all we get are these crummy little you know static ads on on Facebook on the side and i don't i don't know if they had started news feed ads at that point but the either way the ad formats on Facebook have historically been so much more limiting than the kind of arguably user hostile things that you get across the the advertising ego system on the web yep and uh but you know no matter 10 million 10 million dollars that's a big account but Facebook made you know three point seven billion dollars the past year so you know dropping the bucket things proceed um the night before the IPO Thursday night uh Facebook holds an all night hackathon leading up to the IPO and then in the morning everybody's been up all night and the whole company rings the bell for the Nasdaq remotely um remotely from california and zucker burg pushes the button and big fanfare um and then uh and then the company's supposed to start trading and and so they priced the IPO um the night before they priced at thirty eight dollars per share which gives Facebook a market capitalization of a hundred and four billion dollars at IPO um again unprecedented in technology history um and how many they they sell enough shares to uh consist of how much value they they sell four hundred and twenty one million shares uh at thirty eight dollars a share of raising sixteen billion dollars in the IPO and about half of that the company keeps and about half of that is selling shareholders um that are monetizing their shares um so the zucker burg presses the button in the morning everything's supposed to be in trading and uh and actually when um when companies go public on the Nasdaq they actually delay trading a little bit um so that at the open um the the stock to since start trading right away they have a little time to make it orderly because usually there's a lot of interest in IPO's and a lot of um a lot of trades are happening so they did the Facebook was supposed to start trading at eleven oh five a.m. eastern time on um on friday may 18th eleven oh five comes people are placing trades no trades are happening hmm the nasdaq is broken facebook has literally broken the nasdaq i mean it's functioning for all other stocks but um but uh what nasdaq would later describe as a technical error occurs and this just unleashes mayhem on the facebook stock um traders are placing orders and they don't know if they're going to get filled at all plenty of orders placed during this time period aren't filled plenty of order if they're going to get filled at the wrong price so a lot of orders actually get filled at the wrong price at a higher price than what people were placing them at this is a disaster of epic proportions um on nasdaq's part uh and actually ends up contributing this really hurts nasdaq i mean up until this point nasdaq had always been the place for technology companies and all the tech companies were on the nasdaq and the old school companies were on the new york stock exchange um after this i mean nasdaq still has plenty of tech ipo's but the new york stock exchange really makes a push yep um so when twitter ends up going public they do it on the new york stock exchange fitbit grub hubs and desk lots of tech companies are now using the mi SE and a lot of it is because of this so it's pretty bad and and and eventually nasdaq actually settles two lawsuits the sec files a suit against them they pay ten million dollars the sec and then a shareholder uh class action lawsuit against them because of this uh for people who lost money in the facebook IPO um and nasdaq ends up paying twenty six and a half million dollars to share holders as a result um so once once it all gets sorted out though later in the day facebook does begin trading um and it's pretty clear that things are not going well um the stock ends the day at thirty eight twenty three so up twenty three cents from offering price but that's a really bad sign because that means um they didn't get a pop from lots of excess demand and people wanting to buy the stock um and what that usually means and this is what happened in this case that the underrating banks ended up supporting the stock um because they've staked their reputation on this IPO they don't want to let the price fall below um the offering price and so they end up uh more instantly jp morgan Goldman Sachs end up buying a lot of shares to support the price uh on this first day of trading well that doesn't sound sustainable no and it doesn't because the next trading day um which is the following monday um it's a bloodbath so market opens on monday and within fifteen minutes of trading starts um facebook is down almost fourteen percent um which doesn't sound like a lot but like stocks don't fall stocks don't move fourteen percent in one day also i mean that if you think about like that that means that like fifteen billion dollars of market cap was just erased immediately i mean that'd be like um if the whole market moved that much that'd be like the day i'll losing like two thousand points in one day um and this is the second day facebook second day as a public company so that's like destroying like fourteen instagrams yeah immediately um so not good and it's so not good that uh it actually trips what's called a circuit breaker um that stock exchanges have built into them that if a stock starts really getting pummeled like this they'll stop trading in it um so that short sellers just for that stock yeah so that short sellers can't like aggressively bash the price down so this is this is really bad um and uh ends up closing that day at about thirty four dollars of share uh which is down eleven percent the next day on when's uh this i guess Wednesday two days later um the uh the stock opens closes down another nine oh sorry Tuesday closes down another nine percent at thirty one dollars of share Wednesday the stock opens and news hits that facebook is getting slammed with a shareholder lawsuit because news is leaked that that that sixth revision that i mentioned to the s1 prospectus a couple weeks before the IPO well it turns out that there was actually a little more to that story than just revising the s1 and what happens is that um that was the first day of the official road show for facebook on may ninth and um mark and charel and the executive team were doing the road show and at the end of the day david um abbersman who was the cfo of facebook at the time uh so it takes Morgan Stanley aside and says to them hey we're actually gonna lower our guidance for uh what we expect revenue and earnings to be for the second quarter uh and and you don't do this when you're on your IPO road show information yeah well it's private information but a um you don't uh so they were giving guidance as part of the road show to institutional investors um sort of like uh you could think of it like practicing your earnings calls but um investors are gonna want to know what management's outlook is for the future practicing your earnings call but to one shareholder and not all the other people who are like well right they just given the first part of the you know a road show with the old estimates and uh so now they have to figure out what to do but the other thing is you don't you don't lower your guidance during the road show you lower it before you go out on the road show um once you started what what would you do in this situation if you got news that you should low like that it's gonna come in lower if you were in the middle of your road show how do how do you fix that well you probably don't do what facebook and Morgan Stanley did which is uh they decide that they're gonna call the equity research analysts that are gonna cover facebook and they're gonna disclose this news and the reason for this by the way is that mobile was really hurting them so they were terrified that they were gonna come in below expectations because they were behind on mobile and people were switching over to mobile faster than they could get products out the door and get monetization done um so they call up the research analysts but they call the research analysts of the underwriting banks and they tell them that this they're gonna revise earnings down and so the underwriting banks Morgan Stanley and JP Morgan and Goldman they all called their clients their institutional investors which are mutual funds and hedge funds and they tell them hey facebook you know this IPO that's gonna be the IPO of the century next week they actually just revised their forecast down so you've now got this situation where the public has no idea that any of this is happening but all the big institutions know all the clients of the banks that are doing the underwriting for the deal um and so we find out much later but there was a huge amount of short selling pressure on the facebook stock at the IPO because all these banks are like well now there's an information asymmetry like I know something you don't know they should capitalize that on that on behalf of their clients I mean that's what they do so as what they did a securities violation like is that legal well um it's a very much a gray area um and they actually uh facebook never gets in any trouble for this but Morgan Stanley uh takes a big reputational hit and ends up settling a lawsuit actually with the Massachusetts state regulators I'm not sure why it was Massachusetts and not the federal SEC but the only lawsuit that ends up getting settled and it's not that much money Morgan Stanley pays five million dollars in the settlement to uh to Massachusetts for this but they you know tacitly admit wrongdoing here and this is a big uh a big oopsie for them yeah it's crazy thinking about in these like highly controlled environments like this that a side conversation like the two of them had can can create ripples of that magnitude well when you're talking about a sixteen billion dollar IPO that is literally the biggest in technology history and you've just created this information asymmetry and that's gonna be the most watched by all parties including the SEC of all time well when you phrase it that way David yeah not uh not a good uh not to not suspicious beginning um so all told when all this is done the first two weeks of facebook as a public company are terrible um the stock goes down during nine of the first thirteen trading days and by the end of May um so two weeks after the IPO uh Facebook had lost a quarter of its value and remember at IPO to a hundred billion dollar market cap so twenty five billion dollars in value just wiped out wow um the Wall Street Journal calls the IPO quote a fiasco um and uh and so then what do you do so now you're now you're the company your mark your sharel um you know you went you go from being the most hyped IPO in history to literally a fiasco with all these shareholder lawsuits flying around yeah this gaping chest wound of not figuring out mobile yeah so to me there's there's two things going on here one is the the PR thing that you have to manage and the entire like financial ecosystem that you're now a part of and you really have to um you know weave carefully here on on you know your next few quarters are going to be watched so carefully um you taking a huge reputational hit people are afraid of buying your stock other people are opportunistic and getting in and feeling like it's maybe a little risky but then the other thing that's kind of going on here is you know Facebook just needs to inwardly look at their product and and and this is really what they do is say look all of this this um these symptoms they're happening in the in the financial market are because of the problem that one we don't have a credible what like a great mobile experience and and two everyone shifting the mobile anyway even with our crummy experience and we don't have an ability to monetize there and you know the interesting thing is it doesn't take them too much longer to to actually launch which i'm sure you'll tell us about in a moment um to launch their uh their uh mobile assets product but like it is so interesting that um you know as a management team they they kind of took a step back focused on the fundamentals focused on improving the product focused on serving their customers and like actually rebounded from this with with a you know very strong you know step into mobile yeah i mean this is um for me and you know what when we get into grading in a minute here like this is the defining moment for at least the i the public company you know part of facebook's journey like this is what why they are a great company and why market share or great leaders i mean um it would have been so easy to hit the panic button with everything going on here i mean the amount of pressure was just immense um but they do exactly what you said they they um they spend the rest of the summer completely focused on mobile and this is um you know when you hear about uh you know facebook has a very unique corporate culture they have uh essentially like a propaganda department that makes posters and puts them up around campus in Menlo Park and uh posters all of a sudden went up all over campus like you know mobile is our future you know and uh and they get the whole company in the period of just one summer basically completely focused on mobile um they spend all summer working on native apps uh uh August 23rd uh they release their native iOS app uh the native android app comes a little later um and then shortly thereafter it's not like they release that and the markets like oh great problems are solved um on September 4th facebook hits its all time low at $17.73 of share which puts their market cap at about $49 billion so they just lost $50 billion of market cap uh this is really the depths here um but they release they release a product it's a great product people love the iOS app and more importantly it has the ability to insert ads into the feed and now the the age of the native ad and advertising in the facebook feed on mobile is born and and um kind of like a phoenix rising from the ashes uh it's just incredible so they don't turn on advertising in q3 but q4 of 2012 they do turn on advertising on mobile and they go from literally zero dollars to 23% of the entire ad revenue for the whole company uh comes in via mobile on in q4 wow um which which is amazing because when you you think about where they've transformed to today um they basically have cracked advertising on mobile i mean we we the news feed ad unit is is like the best ad unit and i think that for when we shifted to mobile everybody tried to move their banners down to tiny little banners and that didn't work very well and now remember uh like millennial media and i add yeah i'm mad and all that stuff i add launch my career i uh and i'll tell you that's right yeah in in seize the day we benefited from apple which is uh which is an app that you built while you're in college right yep uh it's kind of one of the early to do listen to store uh we launch and we were one of the first partners uh to have i add in there and we had like what a great particular cpm's and apple featured us so like there was like i think nesan leaf was like one of three advertisers that actually bought at anyway so banner ads like didn't work very well apple has since sunset i add um a lot of publishers are moving to just putting their square desktop ads in the middle of of articles people are getting closer with these sort of like native ads and embedded into you know publisher um publisher formats but really like what really works on mobile is is a native Facebook ad and like when you're scrolling through that newsfeed well you know you scroll sort of it ever you stop at every story to pause and look at what it is and for that brief moment the advertiser has the opportunity to take over your entire captive attention in a way that they never could on desktop yep and like Facebook cracked it and it's they're they're the fact that they're 40% of their revenue today and as a hugely successful company comes from mobile advertising is a huge testament to them turning it around they cracked it I mean in a period of about six months while going public with the and while acquiring instagram um they basically invented the mobile ad industry um and uh and and I think a really nice way of putting a bow and on and and tying up the Facebook IPO story is that the next year um tech crunch disrupt 2013 so in 2012 Zuckerberg it said Facebook uh said uh Zuckerberg said in an interview on stage that html5 was the biggest mistake that he'd made in the history of the company uh in 2013 tech crunch disrupt um michael airington asks uh Zuckerberg on stage you know so how about that IPO and uh um zuck says you know hey this is a quote he says uh I'm the person you would want to ask last on how to do a smooth IPO but and this is you know this is a year later he says but it's actually a valuable process having gone through a terrible first year as it made our company a lot stronger you have to know everything about your company it took us to the next level and we run our company much better now pretty interesting pretty interesting yeah so should we go into uh what would have happened otherwise what would have happened otherwise well I think this is a kind of a natural point of segue because it in one of the things that I was thinking about and what would have happened otherwise is um there's sort of three things that uh that you get when you buy a few three sort of like advantageous components to it the first is an influx of cash obviously Facebook's Facebook's gonna raise six seven billion dollars in uh in cash that that goes directly to marketable securities or cash on hand for the company um the rest obviously goes to investors who are existing investors who are caching out um the second is the fact that if they're going to do M&A transactions in the future having public company stock way more valuable than difficult to value private company stock not necessarily more valuable but uh the uh the industry term is it's a liquid currency in that you you can assign a value to you can say like one share of Facebook stock is worth you know X on the public market I can tell you with certainty it is worth $17.73 on September 4th as opposed to I don't know what's a share in PSL worth Ben it's a little speculative at this point exactly um and that ties into our third two is liquidity for shareholders so when you when you IPO you know you've got all these employees that that have been working for private company stock options for years a lot of them having purchased them and you know they can't really get liquid they can sort of use the second market using shares post in second market yeah so it's interesting that like some of the trials and tribulations of the IPO can be attributed to the fact that there was a sort of a value assigned to the company by the transactions that were going on in second market but there were so few of them that it was a pretty illiquid marketplace so you've got this like uh very rough estimate of what the companies were with the sort of setting and guiding what they're going to IPO for and um you know if they had an IPO you could have even more of this going on and the longer they wait the more difficult it gets because people are super anxious to to get liquid on the this you know the part of their compensation that they held for years a lot of it life changing amounts of money yeah I mean I think um I think I'd say here that a lot of the clear just bungling of the IPO was probably a result of just waiting too long and there was so much pent up pressure there um you know pressure to perform pressure to um the the last uh the the round that um Goldman had done uh that they botched with the letting private wealth management clients invest via the special purpose vehicle that was at a $50 billion valuation so you know Facebook want to deliver a two x return on that wanted to hit the mythical $100 billion market cap um I think it was just a lot of bread and then they were forced to by second by uh second market and shares post and the job in lack of having the jobs act which is funny because you were saying that that while they were on the road show is when the jobs act got so yeah so the jobs act actually gets passed into law while they're working on the IPO so ironically they could have avoided a lot of this pressure if they just waited a little bit but they didn't know that at the time yeah and it it it really did seem like what would have happened otherwise like if they had stayed private you know uh to their knowledge it wasn't gonna get passed and they shouldn't count on it and they sort of were forced to IPO um if they had continued to wait longer like actually we're seeing a lot of companies do today um you know you run into these sort of issues where early investors need to get their their money out and they're gonna I don't know do big secondaries and um you're gonna have this the same sort of issues that we're having today with the super unicorns which we should talk about in uh in tech themes but another big one that I think is worth talking about is the fact that they went under a tremendous amount of scrutiny by going public like this really forced management to understand every facet of the business and understand where their huge key risk factors were I really think that the the most interesting part of that as that um as one is where they identify risks to the business because truly like it uh they probably were working on the some of the mobile advertising stuff beforehand but like it is a huge slap in the face and like a huge wake up call to realize our business has an existential crisis on its hand yep hands and so many other companies got destroyed in the wake of mobile and it was interesting that Facebook was able to kind of like keep their head above water until they really kind of came out and thrived yeah well and I think it's um it's such a testament to Mark and Cheryl leading this company to do that because you know it's kind of like a running joke in the industry that like you know risk factors quote-unquote in S1's are like a joke like you know you have to put them in there so let's make up some like phony risks to our business that actually make us sound stronger um but as part of you know I think because of all this disaster um that the IPO process became they had to really answer to like what these risks meant and they saw literally half of the value of the company of value evaporate before their eyes and uh you know what what stronger wake up call to uh could there be to um understanding that they had a big problem they had effects right and I guess you know they could have price lower and gotten the pop that they were looking for maybe they just got out ahead of their skis a little bit and uh could have like weathered this first year by you know pricing at 70% getting a little pop up to like 75% and then you know over the next 18 months then really kind of turning the gas on but and it's interesting they definitely could have done that but like to what would have happened otherwise would they then have noticed like would the magnifying lens have been shown as brightly on how big a problem mobile was right and would they have again fixed like fix the product fix them had model fix the monetization model invented a new ad unit within six months yeah pretty crazy pretty crazy all right tech themes yeah let's do it um the biggest thing that I think we both really want to talk about here we're chatting a little bit before the episode um this totally changed the way that tech companies IPO it was a cultural touchdown according to Wikipedia which is of course according to something else because Wikipedia makes no claims to be correct but rather reference it actually it was a reference to I forget what article labeled it a cultural touchdown yeah yeah but I mean we we um companies that were IPOing before we're averaging three four five years before the IPO Facebook went eight and had this total calamity on their hands and you know we went through a pretty rough patch last year where there were just not a lot of tech IPOs and bleeding into early this year and um I think you can probably speak to this better than I can but we're definitely in a period where people are waiting longer now and that seems like you can kind of trace that back to Facebook it's so interesting I think um one of the um lessons that Silicon Valley and the tech world seems to have absorbed from the Facebook IPO is don't go public it's terrible like um and the IPO was indeed terrible as we've said but what's so interesting is like Zuck would be the first one to refute that right like in his quoted you know a year later a tech hunch disrupt like it was great for the company it forced them to really you know step up and play with the big boys playing big boy land and big girl land um and uh uh but but the lesson that's been taken is totally opposite so Ben you're referencing this I pulled some numbers on um some tech companies well known tech companies that went public before Facebook and how long between founding and when they went public so Zingo went public before Facebook a couple months before uh four and a half years from founding to IPO which is crazy to think about the Zingo was built on the back of exploiting opportunities within Facebook right like that Facebook may have been whatever 12% or something like uh uh uh rather 16 percent 15 percent rely on Zingo but Zingo was like a hundred percent rely on Facebook and then when they run into big troubles when they tried to move off of Facebook and kind of control their entire ecosystem with their own ones they had no control um another company similarly Groupon three years from founding to IPO I think I was at the tech crunch to strap when Andrew Mason was on stage and said never take your company public yeah right like this was the this was what people were entrepreneurs were internalizing from this um you know Zillow which we covered six years um Pandora seven and a half years people thought that was a really long time to go from founding to public you know the VCs were dying to get out of that company um linked in that we covered six and a half years um so that was kind of like the normal before Facebook after Facebook like like you said Ben you know there's the really great companies haven't even gone public but the ones that have like Etsy 10 years Shopify 11 years Fitbit eight and a half years Atlassian 13 and a half years Twilio nine years this year um people are staying private a really long time and and not just not just staying private but raising just absurd amounts of money so um you know Google right like it's so funny to see the evolution of the generations of tech companies and how they treat you know behave in the private markets generations in the last 20 years well generations and tech companies are about four years it's like going to college yeah um Google raised 25 million dollars before they went public uh Facebook raised you know kind of two to three billion dollars when you include that Goldman round before going public without the Goldman round you know somewhere around a billion or so um uh Uber has now raised 11 and a half billion dollars um over the eight years or so that uh it's insane that you can raise 11 billion dollars without having to like be under the scrutiny of a public company and I guess I mean that's that's totally the sighted advantage right is like we don't have to disclose all these things it's better for competitive reasons but like really it's for a lot of these companies this is worse for everybody yeah um yeah it's worse for the companies because you're not accountable to these massive challenges that you're facing like right what if like let's imagine uh let's do another what would it happen otherwise for Uber like let's say instead of raising the last couple billion dollars Uber had gone public and was staring down this dd situation in China as a public company um and would have you know been forced to really fix it yeah I mean it turns out that hundreds of years of of standard accounting principles and and having to disclose in this very standard format is actually like quite good for keeping good for the company yeah keeping discipline for the business yeah um and uh um and and it's not you know it's not good for investors right because investors now the the reason you know what you've seen since the Facebook IPO is obviously like the age of the unicorn has existed and that's that's twofold you know it's one company staying private longer not wanting to go public um but then related is that investors all the people that were investing in these IPOs like they're their business models predicated on getting cash into companies at this stage right so you've seen t-ro price you've seen fidelity you've seen tiger global the hedge fund you've seen drag in here and you know xyz other directly in public company public markets investors start doing late stage private venture rounds yep because that's what they've always done it's just now those deals are happening in private instead of in public it's bad for the company it's bad for the investors because they don't get the disclosure and it's terrible for the public because like you can't buy these stocks it's really like it kind of anti patriotic like it follow me on this but the the um American prosperity is built on the fact that for hundreds of years American corporations have innovated like we you know the computer the internet like all these things that like we conceived of and and you know brilliant innovators in the u.s. be often because of our great public public education system and a lot of the the kind of shared values of our culture like having public markets allows for the everyday person to you know now it's more like through mutual funds and index funds or if you want to take a flyer on a company but like benefit from the aggregate wealth creation that comes out of the American corporation yep and like it really freezes those people out and it's really I mean if if you want to like really carry it forward like sort of contributes to wealth polarization yeah I think it absolutely does like I think they're you know there are two elements of as we are seeing in this election cycle play out so viscerally like income inequality and wealth inequality in America is more polarized than it's ever been and here's the crazy thing we're sitting here on Monday night our listeners will will know the outcome of this election where we do not yeah we're literally the night before the election here which is also crazy all that riding outside that you hear all the sirens and stuff is because the Seahawks Monday Night Football game here in Pioneer Square not because of the election night before the election Seattle has its priorities either straight or completely wrong depending on how you view things but yeah like part of that is that these entrepreneurs are creating these tech companies and like they're getting massively wealthy you know March Zuckerberg and you know Travis and Airbnb guys and whatever but but it's equally on the investor side too like the people that are investing in these companies are so much more institutions now and for so much of the wealth creation period of these companies than they ever were so much more yeah when you restrict the access to invest to people that already have the information and means to do so and large enough you know amounts of money to deploy it's like it's a rich get richer scenario and that's pretty crazy and actually to kind of continue this like thinking about tech trends or really like investment trends with big institutions coming down market and investing directly rather than deploying that capital into private equity and late-stage venture it kind of puts the squeeze on those industries so yeah absolutely there with there's a few things sort of contributing to this trend there's this notion that we've been talking about that companies want to go public later but you know they are investment vehicles where large amounts of money can be deployed so large amounts of money will be deployed so there's that thing going on in the private markets yeah exactly exactly it simultaneously you have this other market force that's fueling that which is over the sensitive element of the internet that one thing has always been true and that is more information will be more available to more people than previously existed and so now it's so much easier to get information than it previously was that you institutional investors the VCs and private equity firms would make the case to their limited partners and their investors saying look I have information access and connections to these startups or these late-stage companies that I will deploy this capital into and I have unique access to that whereas like that's becoming less and less true like there's there's a lot more visibility into what companies are performing well and people can kind of go find them directly and obviously that's not entirely true like the the there's still a very human element to all of this but it is in general it's easier to find out who is running a company and if that company is doing well and reach out to them if you have an attractive offer to invest than it ever has been before I mean I think about this every day in you know being a venture capitalists and at the early stage were somewhat insulated from this somewhat but like only somewhat and you know there's sort of three things that a venture capitalist does and I didn't make this up but I mean lots of people talk about this but it's totally true. You know you find company one find companies great companies to you know pick them decide you know if you're going to invest or not if you think the company has high potential or not but then three win the deal if it's a competitive deal and you know it used to be that like those three disciplines were like all really important and now like at least the belief is that it's all about winning the deal you know it's like oh yeah like you can find companies easily and like yeah you can tell like what's going to be successful and what's not I mean like there's some judgment there but you know it's kind of a commodity but like winning like that's it's all about winning now. If well if that's the case and it's really all about you know just getting the best deal then it should be more on entrepreneur friendly and like prices should go up and it should be much more commoditized to the point where exactly what's happened exactly that investors effectively just get the minimum acceptable return that any of them are willing to deal with. Yep at the late stage venture this is 100% what has happened over the last few years in the market and it's changing slightly on the margins but but this has been a powerful force across all of venture and especially late stage venture in the past few years. All because of the Facebook IPO. Thanks Mark and Gerald. I don't know for saying that exactly. All right sweet bringing home. Yeah yeah yeah. Do you want to talk about how we thought about what our criteria would be for grading IPOs? Yeah absolutely so you know the way that we normally grade an acquisition is through the lens of was it a good way to deploy that capital for the acquirer so we kind of close our eyes and don't really care about was it a good thing for the acquirer because like they're getting a bunch of money it was a great thing their investors are cashing out and almost every time that we analyze it it was good. Yep and we think a little bit about like the financial you know returns to the acquirer but you know we're not spreadsheet jackies here right right we think we're there was strategically was this was this a good move for the acquirer. Yeah and we think about did that acquisition both provide that that financial return but sort of in a longer lead time scenario was it something that made that a better more lasting more during more more value for longer more valuable for longer company. And so the way that we decided that we're going to grade IPOs is through that same endurance lens. We want to assign this a grade based on the rubric of did it make this company a more lasting and enduring institution have it a a bigger competitive mode make it a stronger more viable long lasting company. Yeah the the way we were talking about it before the show and and I want to think about it is like was the IPO a springboard for the company or or a diving board. Yeah a lot of people thought the Facebook IPO was going to be a diving board. Yeah yeah and so what that allows us to do is sort of zoom out from that that terrible plunge you know in the first week plus the ensuing months. Really the whole year yeah for the first year um I mean the stock was below the IPO uh below the IPO price. Right and it it it allows us to look at the company as it exists today and and look at that moment of IPO and say was that the right move for the company or not. So with that rubric in mind. What's your grade on this? I am going to call this an A- um a lot of that is based on how bullish I am on Facebook today. How great their strategy has been uh since the IPO um correcting for a lot of those blunders. The minus is because I am not convinced that all of the the um tumultuous times that they went through contributed to the the success that they are today. I think that they could have gotten here. They definitely needed IPO. I think that that was a no doubt about it. They needed to do that situation. Um but I think that they could have gotten to this point of of uh you know hyper growth and and like kind of saturating the addressable human race with internet um crux that they're at today. Yeah. I think they could have done that without such a bungled year. Uh no doubt it was a bungled year. Um I I'm not so sure. I um I am going to give this as uh probably unsurprisingly giving my enthusiasm during the history and facts. Um I'm going to give this an A plus because I think they wouldn't have um and I think had they not gone through that year and had this massive you know 20,000 megawatt spotlight showing on them. Um they wouldn't have moved so fast uh to plug the mobile hole and wasn't just a hole like it was a chest wound. Um and uh and built like we said not just the product um but uh the whole business and advertising model and invented native advertising practically within six months. Um I think they I agree with you. I think they could have done it eventually but had they not moved so fast because of this would they have lost and and the other thing that's in my mind here um clearly May was the pivotal moment for the Facebook IPO when things really started to go south and these probably these cracks started getting exposed but I got to imagine that the whole process was really in Mark and Cheryl's minds um uh starting to expose some of this stuff and what if they had not bought Instagram in April uh and um and if they had not bought Instagram and not moved so quickly to plug these holes would there be a future where or an alternate present today where Instagram had remained an independent company had become the Facebook of mobile had figured out native advertising and completely eating Facebook's lunch. I mean because if you look at so if you look at uh Facebook's revenue over the last couple years essentially the desktop Facebook is completely flat to down over the last four years. What was their whole business this meteoric rise that made them the most hyped IPO ever the largest technology IPO ever that business is essentially dead um and like you said 84% of their advertising now is mobile um what if that were you know half a third a quarter a fifth or a tenth of what it is today an Instagram where the gorilla and mobile advertising yeah I mean there's a whole lot of things they would need to go right there right a whole lot of things for sure it's it's that they would need you know to to have a Cheryl Sandberg right who who's gonna build this like operational advertising sales business right you would need um well it's actually really interesting looking at uh so Twitter didn't have this crux yep right like Twitter and Twitter was always you know if not mobile native like it was yeah let's do text messaging right yeah yeah and and you look at their transition to the this remote the smartphone world and um I mean Twitter is still like still doesn't have a great ad unit yeah and there's a lot of problems going on there and we're kind of seeing it all fall apart in front of our eyes but like uh a large part of it is like it's it's just never the Facebook ads are way more compelling particularly on mobile and like if Facebook you raised this interesting point like if Facebook didn't feel this existential crisis could they wind up in a Twitter like situation at least with their uh maybe not with engagement but with monetization yep or or even you know maybe not Instagram but I'll throw it out there you know it was uh February 2012 when Facebook filed its S1 one year later February 2013 snapchats founded so you know um a lot of possible one of the greatest things that I love the most about our industry is it is so hyper competitive um and I think this is just such a great um case study of why you can't rest on your heels even when you are the largest tech IPO in history yeah because man the next generation is coming right after you yep all right um speaking of Twitter follow ups Twitter lots going on on Twitter these days um but they're shutting down Vine potentially selling Vine yeah no surprise there I mean it's shocking to me that um they haven't and I think these are will will come but they had like nine percent layoffs like it it seems like there's a lot more of that to come they're they're they got a streamline their products like it's kind of shocking to me that they didn't they didn't do periscope to and one fell swoop I think they're probably the reason that's probably living on is because uh um Facebook live is proving so with a future of Facebook that Twitter is is really afraid to exit that race when Facebook is making such a big bet on it yeah um wait a total aside by the way related to Facebook um doesn't get it gets a lot of press but not in this context like Facebook is kind of trying to do this again everything we're just talking about it's reinventing itself around video I think yeah I think there's an existential thing where they totally and VR right like they they totally feared like missing the the next boat since they almost missed the mobile boat so like bioculous and be way ahead of the curve on that yeah yep and and you know snapchat is mobile and I just made that analogy like oh good snapchat killed Facebook and mobile but like snapchat's also video right yeah yeah so for me uh you know tough to do you never want to kill products that people love but like uh I want I'm rooting for Twitter to survive at all here and so I think they need a lot more belt tightening to get there because it's not it um to me they're in this to very difficult situation where all the investors are super excited that they might sell so that sort of pushes the price up right right and then that price tag ends up being too expensive so they're in this like we're catch 22 or they they were unsuccessful in finding a buyer and now they have to like go figure it out and they've already gone public right we need to add a third category to the show which is like what happens if you've already gone public like you have no buyer like yeah plan plan C yeah it's a it's an invaluable product to the world and it like I really want it to endure and it's actually a pretty good business like they sell a lot of ads and their ad their their their reasons why people use Twitter ads and and can't necessarily satisfy that on any other platform it's a good business it's not a Facebook size business and they really need to reduce their cost to get it to a place where it can actually live on sustainably yeah I agree quick follow up on Skype our last episode we speculated on the show that Microsoft might have used foreign cash to buy Skype which was a non-US company and it turns out that is indeed the case was indeed the case we were pointed in this direction by Nick Seagland dear friend of Ben and the show helped us a lot in the early days with with feedback on the pilot thanks Nick thanks Nick and he pointed us to an old blog post that he wrote after the acquisition about talking with a friend about this and yes it turns out Microsoft did use cash that was holding overseas to buy Skype and so it got a massive it was able to essentially repatriate that cash tax-free then got a massive tax benefit for it so definitely plays into how you should think about the Skype acquisition yeah and it's if I recall not not only did they avoid you know paying the you know approximately 33% to repatriate that capital but then there's that second advantage too yes there there is that second advantage and that's what is apparently referred to as quote the deadly D that they can repatriate apparently up to another eight and a half billion of cash tax-free which at a 30% tax rate is worth two and a half billion to them so in theory perhaps Microsoft is getting about five billion dollars in tax credits out of of value out of the Skype deal pretty wild and that's eye opening for me like if a US based company uses overseas capital to make a purchase overseas they can repatriate that same amount of capital back kind of in like exchange for deploying that capital in an acquisition it's a it's really interesting to start thinking about other companies that have huge amounts of cash overseas Apple Microsoft and and you know actually most big tech companies at this point yeah all of them and like what they could possibly do yeah interesting yeah any corporate tax lawyers out there who know anymore about this we'd love to hear from you we'd love to hear from you let us know all right carb out carb out so I was chatting with some of the listeners in slack if you'd like to join the slack go to acquired dot FM and you can sign up there and we were talking about the internet history podcast oh so good this is an awesome awesome awesome podcast where I believe it's Brian McCullough Brian McCC on Twitter it's like a hundred episodes or more yeah super long this is so good if you like acquired you will love the internet history podcast particularly the story part yeah that the I started listening to the the show like a year ago and it's it's like it's sort of like long form reading but just having it sort of read to you and he starts out with the the the net scape the story of the net scape IPO dating all the way back to you know the founding of the mosaic project in Mark Andreessen and really like all the incredible drama in there but the the episode that I just listened to that I loved that had all sorts of interesting nuggets about the founding of amazon with amazon's technical co-founder and employee number one shell cap and and it's so interesting to get the engineers perspective on the founding of amazon because in in you know the ensuing years you kind of get the the version of it that's in the everything store and you get Jeff talking about it on stage and it's really this like not quite revisionist history not quite sensationalized but definitely through the eyes of and through the lens of what amazon is today and shell left amazon you know a few years after they founded it and sort of he almost feels like his his viewpoint is frozen in time and you really get to hear not only the the perspective of someone who who remembers just that piece of amazon history extremely vividly but you know he's also like one of those just super endearing old school engineers and the way that he talks about you know oh well you know we were using an oracle database that had never seen this many times before so we crashed that and I was an oracle guy so we were just kind of making it work and then and like it's it's awesome to hear about all these really early stage amazon stories about when they were kind of patching it all together in the early really days of the web so whether you're an engineer or not I think anybody listening to this show will love that episode yeah totally and like we said let us know too if you like the the IPO addition to the show if you guys do and we we go forward with it we're definitely going to have to do amazon at some point absolutely no no shortage of drama in that IPO either nope but okay my carve out for the week I thought would be appropriate given that we covered Facebook today is a relatively new book by paragana called connecdography mapping the future of global civilization that I read is a really good book and basically the it's like a you know like a geopolitical like think piece which usually is not what I'm into but it hadn't recommended to me and it's great and basically the thesis of the book is that what the axes of power in the world like geopolitically are not nation states and borders and geography and land or even populations that much anymore it's connectiveness connectivity and that the more connected a nation state is whether it's physically with like supply chains or like you know supply chains for industry or oil pipelines or water or electricity or the more connected they are to ideas and to trade also relevant very relevant to the election that is happening tomorrow as we record this happen in the past for all of you and happen in the past for all of you anyway the argument is that the more connected a nation state is the more powerful it will be and that really nobody gets this better right now than China and all if you look at a lot of China's foreign policy the Silk Road and essentially massive trading block that they're forming in Asia it's all kind of based on on this and it's delivering you know creating massive power and influence for them anyway great book totally related to Facebook connecting the world yeah all right well that's it for today if you aren't subscribed and you want to hear more you can subscribe from your favorite podcast client if you feel so inclined we'd love a review on iTunes maybe a tweet share on Facebook it's how we grow the show and it's how we make it even better so thank you so much and have a great day who got the truth is it you is it you is it you who got the truth now