Back in the middle of 2000, I started work as a software tester at a startup information technology company (then again, who wasn’t working for a startup back during the time of dotcom bubble?). This was the type of company that was creating a software application from scratch. We had no customers, but we had a collection of venture capitalist folk who consistently tossed money at us at certain intervals.
In late 2001/early 2002, the executives of our company offered its employees the following deal. The financial gurus made the proposal that we could buy stock in the company at a low price with the promise that when the company went public at its initial public offering (IPO), we could then sell those shares of stock. It was highly hinted that the price at IPO would be much higher than the price we were being offered.
This was near the end of the dotcom bubble, but there was still plenty of buzz around the software world of startup employees making hand over fist once their companies had their IPOs so several of us at this company looked favorably upon this transaction.
I’m not a financial genius by any stretch of the imagination, so I went to a family friend who is.
When I spelled out the nature of the transaction to our monetary wizard, he asked me what the financial state of the company was. I told him that I had no idea. He said I should find out, but he then gave me some advice that I have kept in my back pocket all this time. He said I needed to be leery as to why my company needed our money so quickly. Without knowing the company’s finances, he thought it odd that they were coming to its employees for an infusion of cash.
The next week, I tried unsuccessfully to discover how well the company’s balance sheet was doing. At first, I received some mild hedging and “We’ll get back to you” comments. At the end of the week, when I was told in no uncertain (albeit friendly) terms that the assets and liabilities of our company was none of my business and outside of my job’s responsibilities, I decided not to buy any stock in the business that employed me.
In June of 2002, I, along with a quarter of the staff, were laid off because of the poor financial situation of the company. Our VC angels had grown tired of throwing good money after bad and demanded changes.
To me, the poor monetary showing of our company was why they needed our money. To this day, I have remembered my friend’s advice and have always looked askance at those business that have the cup out.
That is why my SomethingAskewDetector (patent pending) went up when I read that Facebook has opened an app store and unveiled a new program to allow its users to pay a nominal fee to have their posts receive precedence.
On the heels of its IPO, Facebook has come up with (at least) a pair of programs in an attempt to increase their revenue.
In addition, mere days before shares of this social networking company go up for sale, Facebook announces that it is both elevating its target price for its shares from $28-$35 to $34-$38 and increasing the number of shares that will be made available for sale to investors. Both moves are expected to raise the total amount of money to be earned by Facebook in its IPO.
The cup is out and I wonder “Why”?