Facebook Underwriters Probably Regret Decision To Allow Early Investor Exits

Peter Thiel’s decision to sell almost all of his stake in Facebook so soon after the company’s initial public offering has few precedents in Silicon Valley, where venture capitalists typically hold shares longer.

Bloomberg reports that Thiel, a Facebook director and its first outside investor, divested 72% of his remaining shares three months after it went public. Of the 40 biggest U.S. technology IPOs since the end of 2010, only Facebook and its underwriters let some backers sell so soon, with every other company adopting a so-called lock-up period about twice that long.

While venture capitalists commonly sell their stakes after helping startups reach the public markets, they usually whittle their holdings over a period of quarters or even years. That’s to avoid flooding the market with too much new stock, which can drive down the shares, and to show continuing support for the company. Thiel’s timing was particularly precarious, because Facebook was already down about 50% from the IPO.

'With the benefit of hindsight, you could say that the underwriters probably regret agreeing to an early release of the shares', said Ted Hollifield, a partner at Alston & Bird LLP in Menlo Park, California, and an expert in venture capital. 'The stock still seems to be searching for an actual trading range and you would ideally like to see that take place before there’s additional selling pressure'.

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Facebook Director’s Quick $1 Billion Share Sale Lacks Precedent