This Facebook-Goldman Deal Reeks — Here’s Why

From its origins as a social network for Harvard students to the privileged backgrounds of its founders to the condescending way that it has at times engaged with both developers and users, Facebook has often seemed a little superior.

Facebook’s pact with Goldman – which has committed $450 million to the company at a $50 billion valuation and created a related, $1.5 billion special purpose investment vehicle, marketed exclusively to its “high net-worths” — does little to dispel that notion. Through the Goldman deal, Facebook is cementing the impression that it doesn’t owe its users anything.

As someone who has posted more than a few silly photos of herself and her family on Facebook, I beg to differ.

Facebook profited because of the user-generated content that people like me have posted on the site. The notion that only millionaires benefit in this deal is repellent, especially when the bank serving up the deal forbids its own employees from looking at the site.

When Google went public in 2004, it steered clear of sweetheart deal-making, settling instead on a Dutch auction process that was open to all bidders. It had numerous reasons for doing so, including that Dutch auctions can theoretically reduce first day price spread and leave more of the proceeds in the coffers of the issuer than traditional IPOs, which typically direct five to 10 percent of the total value to underwriters.

But Google’s process also seemed bent on ensuring that whether an investor had $100 or $100 million, he or she could get a piece of the company. Indeed, when I spoke recently with former Wall Street analyst Lise Buyer, who helped take Google public, she said that Google “went out of its way to help people who’d gotten Google to where it was at the time of the offering.”

I’d be thrilled if Facebook followed in Google’s footsteps. Not only is Facebook uniquely attractive to retail investors because of the nature of its product, which hundreds of millions of people know intimately, but it has the leverage to pull off a Dutch auction, which isn’t the case for many companies. A meaningful side benefit would be an opportunity for Facebook to reward the little people who made Facebook the hugely valuable property that it is.

Buyer, who today runs the IPO advisory group Class V, generously calls the divergent approaches of Google and Facebook “fascinating.” I wouldn’t be so kind. Deals like that of Facebook-Goldman reek of an old boys club way of doing business. They are exclusionary and elitist. For a company that prides itself on its connection to its users, Facebook’s decision to tie up with a bunch of millionaires is tone-deaf to the extreme.