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February 21 2014


February 23 2011


Goldman Sachs Pumps A Whopping $70M Into Virtualization Company AppSense

AppSense, which specializes in what it calls ‘user virtualization’ solutions, has raised $70 million in its very first round of funding. Interestingly, the entire investment comes from one backer, Goldman Sachs, whose managing director Pete Perrone will be joining the company’s board of directors.

AppSense says it will use the funds to “capitalize on its position as a market leader” in what it anticipates will turn out to become a $2 billion market in the next few years.

User virtualization is a way of managing all user-specific information (think: user-based corporate policy, personalized settings, user rights management and user-introduced applications) independent of the desktop, and applying this information on-demand into any desktop. This essentially enables IT departments to standardize the corporate desktop build, automate desktop delivery and easily and securely migrate users to new desktops.

AppSense has been providing technology solutions to simplify desktop management for over twelve years now.

In 2010, AppSense signed up more than 4,000 enterprise and government customers around the world, including major companies like BT, ESPN, JPMorgan Chase and United Airlines.

Last year, AppSense says it sold some 1.5 million user licenses, comprising a partnership with Fujitsu to provide desktop management solutions to the Department for Work and Pensions for more than 1,000 locations and over 140,000 users in the UK.

Charles Sharland, chairman and co-founder of AppSense, and the company’s recently appointed CEO Darron Antill together used to lead Vistorm, which was acquired by EDS back in 2008 and is now – essentially – HP’s entire Information Security business.

January 17 2011


Goldman Blames Media Attention For Killing Off Its U.S. Facebook Offering

Both The Wall Street Journal and The New York Times are reporting this morning that Goldman Sachs has decided to limit its much ballyhooed private offering of up to $1.5 billion in Facebook shares to international investors only.

The reason? SEC scrutiny, sparked by this January 2nd article in The New York Times announcing Goldman’s $450 million investment and creation of a “special purpose investment” vehicle for Facebook. Arguably, as the Times article created a demand to get in on the private placement, it could effectively be viewed as solicitation by the SEC.

In a statement given to The Times’ Andrew Ross Sorkin, Goldman refers specifically to “intense media attention” as motivation for pulling the U.S. placement.

“Goldman Sachs originally intended to conduct a private placement in the U.S. and offshore to investors interested in Facebook. The transaction generated intense media attention following the publication of an article on the evening of January 2, 2011, shortly after the launch of the transaction. In light of this intense media coverage, Goldman Sachs has decided to proceed only with the offer to investors outside the U.S.

Goldman Sachs concluded that the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law. The decision not to proceed in the U.S. was based on the sole judgment of Goldman Sachs and was not required or requested by any other party. We regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take.”

It’s unclear what the consequences would be if Goldman had continued offering US investors the chance to buy Facebook shares and the SEC found that it had acted inappropriately, say by leaking the story to The Times. By only offering investment outside of the SEC’s jurisdiction, Goldman is effectively circumventing such an investigation and the possibility of fines or other sanctions.

Media coverage of hot companies has raised red flags with SEC regulators in the past, most notably with Google’s infamous Playboy interview just before its IPO. Google went on to IPO at $85.00 a share.

Image: kellerabteil

January 08 2011


Go, You Vampire Squid

Editor’s note: Guest writer Rory O’Driscoll is an entrepreneur-turned-venture capitalist. He is a Managing Director at Scale Venture Partners. You can follow him on Twitter at @rodriscoll and blogs at VCMatters.

I simply love Goldman Sachs. The Facebook deal is a brilliant poke in the eye for just about everybody, and proof, yet again, that money, like water, finds its own level. If there are buyers and sellers to be matched, and a fee to be made in the process, the fine folks at Goldman Sachs will figure out how to bridge that gap. So much the better if there is regulatory friction to arbitrage against, it simply raises the fee.

For the last seven years, the venture capital industry has been saying that the IPO process is broken and startups are the losers. In a fine display of Wall Street’s can do attitude, Goldman has gone and produced an alternative to an IPO; one where the clear winner is the startup.   Make no mistake; this is a great result for Facebook.  Consider the alternative. Going public is hard, and being public is harder. This is true for a company like Facebook, not because of the cost of Sarbanes Oxley compliance, which would be more than manageable, but because of the insidious nature of being public and having a focus on quarterly earnings, governance and the stock price. No matter how hard you try to avoid becoming short-term focused, the constant drip of analyst meetings, quarterly updates and daily stock price tickers takes its toll. Your earliest and best employees, fully vested and now fully liquid, leave, and instead of building a company, the CEO is getting on quarterly analyst calls.

The best reason to go public was to get the money. Conventional wisdom used to say that the only way to raise $1 billion-plus, at an attractive valuation, was to provide investors in return the transparency and the liquidity that being a publicly traded stock entails. The company puts up with the analysts, the information requests and the quarterly filings in return for getting the cash. Goldman has given Facebook all of the benefits  and none of the negatives of a public offering. They should have a happy client.

It is of course axiomatic that the other clear winner here at least in the short term, is Goldman Sachs. They have made a bet with their money that will either work or not in the next two years, but along the way they will make many hundreds of millions of dollars in fees. From all accounts, their retail client base is happy to be offered the chance to invest in Facebook, and Goldman will make a 4% fee and a 5% carried interest on the deal. If they sell enough, and can sell down some of their own piece, they can be money-good on Day One. The demand sounds like it is there.

The clear losers here are the stakeholders in the IPO process, namely the exchanges (NYSE, Nasdaq), the SEC, and arguably the large institutional investors who are restricted to investing in public securities. The dearth of venture backed IPO’s in the last ten years can be looked at in reverse as a loss of market share for the “IPO and beyond” team.  There are numerous privately held companies that would, in an earlier time, be public and want to be public (because the Goldman Facebook option is not available to them) and are instead still private, because the IPO process is hard and the public market investors have been gun shy. Although this has been presented as a negative for the private investors, the reality is that it is arguably a bigger negative for the exchanges and investors. The exchanges have left trading fees on the table, and the public investors have not participated in the creation of value, that has instead taken place on the private side. Anyone with a 401k should be wishing that Facebook had gone public at a $5 billion valuation three years ago. The subsequent $45 billion of value creation would be dispersed across thousands of 401k’s and not concentrated here in Silicon Valley.

What about the new investors here, are they winners? The honest answer is who knows and who can know? Would Facebook trade today at $50 billion in an IPO? I don’t know. Could it be worth $100 billion in the future? Quite possibly.  All you can know for sure is that, because this investment is illiquid and the company will not be filing quarterly financial updates, the investors will not suffer the torture of knowing their investment is “under water”,  if such should happen, along the way. No news means no bad news.  Not, it would seem, that some of the investors care. In a wonderful quote from the Wall Street Journal a Goldman client said;  ”It’s hard to imagine how this thing is going to make money, still the deal is an attractive opportunity”. All the SEC regulation in the world cannot save people like that if they don’t want to be saved. Maybe it is best that instead, they just enjoy the privilege of being a special Goldman client.

The reality is that this is not a trend, it is a singular event. There are not ten Facebooks out there, instead there is, roughly one Facebook every ten years. As a small part of the fun of being an utterly dominant company, each decade’s winner gets to slap around the IPO process. Microsoft made the underwriters cut their commission, Google ran a Dutch Auction, Facebook for now has contracted out of the process entirely. None of this represented a trend that others could follow. For almost every other deal out there, this kind of financing is not an option and the IPO process will continue broadly as before.  For those of us in the investing business who did not invest in Facebook, the only good news from this could be if the competition does sharpen the “IPO and beyond” team up a bit. The only bad news could be if the SEC, in an understandable effort to amend the rules to prevent this from happening again, changes them in such a way as to impact venture firms with more typical LP/GP structures. It shouldn’t happen, this really is a one off, but the SEC has got to be thinking dark thoughts about expanding the rule book.

Failing either of these outcomes, I am left saying “bravo” to the great vampire squid and the unstoppable chutzpah they have shown.

Image credit: Goldman Sachs “Vampire Squid” Moniker Courtesy of Matt Taibbi in RollingStone

January 07 2011


‘The Daily Show’ Weighs In On The Facebook Investment Frenzy [Video]

John Stewart took a bite out of Facebook tonight on “The Daily Show,” specifically Goldman Sachs’ recent $450 million investment at a $50 billion valuation and what it means with regards to a possible Facebook IPO in 2012.

Stewart wryly comments on the irony of Zuckerberg’s reluctance to go public, “Mark Zuckerberg doesn’t want to be transparent? The guy whose immense success was founded on mining our personal data, the guy who shares my photos with the whole world unless I change my privacy settings every half an hour!?”

Stewart also goes on to call John Battelle’s Web 2.0 Summit “Nerdfest 2008″ and show hypothetical pictures of Facebook employees having a money fight and frolicking in a cash bonfire and well …

Just watch. Trust me, it’s good.

January 06 2011


Things about the Endless Facebook Speculation that Have to Be Said

I’ve avoided writing something about the Goldman Sachs- Facebook deal, because God knows the rest of the blogosphere has been doing enough speculation for the entire world. But four things I’ve read in the last 24-hours need a serious rebuttal.

1. Facebook is still not “essentially” a public company. I don’t care if it reaches 500 indirect individual shareholders through the Goldman transaction, a public company is one where the general public is able to invest and existing shareholders are able to sell shares, without approval from the company first. That isn’t happening.

Deals like these have indeed been Facebook’s way of avoiding the pressures that would force a company to go public for some time now, so there are IPO-like ramifications from these deals. But that doesn’t change the fact that a tiny fraction of people are able to buy and sell shares. That’s a huge fundamental difference that affects everything about the way a company operates. Anyone who has run, worked at or covered a public company and a private company for any period of time knows that. Beyond that, it’s just an argument of semantics.

2. Some people are drawing a comparison between Google’s let’s-empower-the-users IPO by dutch auction and Facebook’s selling of shares to Goldman’s richest clients as if it’s an indication of some Robin Hood vs. Sheriff of Nottingham moral battlefield. These two deals are not apples-to-apples comparisons, by any means. For one thing, this isn’t an IPO no matter how badly some members of the tech press want it to be. (See point #1) To my knowledge, Google never let its users or everyday people buy pre-IPO shares.

But beyond that, the comparison misses a fundamental difference in the relationship between Silicon Valley and Wall Street from the days when Google was founded and today. This difference has been widely documented, is far broader than just Facebook, and has been brewing for more than ten years. It’s part of a continuum that started with the excesses of the dot com bubble, culminated with huge changes on Wall Street that hurt the ability for smaller companies to go public and the desire for entrepreneurs to take them public, and has been rippling through several trends like partial liquidations, secondary exchanges and buyouts. This is about an industry as a whole looking for other ways to get liquidity that don’t sacrifice price and independence. That’s the reason deals like these aren’t confined to Facebook.

What’s more, Facebook and companies like it are actually following in Google’s footsteps, in many respects. Compared to its generation, Google waited an extraordinarily long period of time to go public and did so very much on its own terms, so that it could protect its ability to be nimble and above the whims of activist, short-term hedge funds and traders. For all of its marketing, you could argue Google’s IPO was anti-the-little-guy, because it pioneered the modern use of a dual class of voting and the company refused to give earnings estimates or play other annoying Wall Street games. The company boldly drew a line in the sand and essentially said, “You want to own shares in us? Here’s the deal.” And for its generation, Google initially offered a pretty small float of shares, which was one reason the price soared.

If you look at the reasons behind why Facebook is doing what it’s doing, I’d say Mark Zuckerberg is following the spirit of the Google playbook, not going against it.

3. Being a public company isn’t a way to force Facebook to be “good.” I have a lot of respect for John Battelle, but I just don’t get this argument that Facebook trading on the Nasdaq or New York Stock Exchange means the company is a more responsible steward of our data. This is more of the hangover from that Google “do no evil” nonsense.

For-profit companies are financially motivated not morally motivated, and nothing makes you more financially motivated than being publicly traded and having to produce quarterly results to please Wall Street. Look at what happened to daily newspapers once they were owned by publicly traded companies who cared more about seeing 10% growth year-over-year than being stewards of local news.

Battelle raises a good point about the risk of Facebook using all it knows about us for selfish gains, but I don’t see how reporting quarterly numbers suddenly makes that go away. Does anyone feel like they know everything Google is doing with our data by reading its SEC filings or listening to a scripted conference call? I don’t. And frankly, I’m more worried about the things Google knows about me. The information about me on Facebook is what I have volunteered to share with people. Google has information on everything I’ve ever searched in the privacy of my own home and the content of my inbox. That’s a hell of a lot scarier if used for its own gain.

But as a user, I still trust Google with all of this, because it’s ultimately in its best interest as a company not to abuse that public trust for short term gains. Same goes for Facebook whether I can buy a share of it or not. Going public doesn’t force a company to be good, anymore than a wedding ring forces a man to be faithful. (See Enron.)

4. The SEC forcing Facebook to disclose financials will not “force” the company to go public. The reason entrepreneurs like Zuckerberg, Reid Hoffman, and countless others who opted to sell their companies in the last few years do not want to go public has nothing to do with disclosing quarterly numbers. It has to do with the brain drain of employees leaving for the next hot, pre-IPO company. It has to do with a CEO’s job becoming more about managing Wall Street and the press than building the business. Being public brings with it an almost inevitable shorter-term focus. And most important for someone like Zuckerberg, it means the CEO can’t spend his time obsessing on product, which is mostly what he cares about.

I remember discussing this with Zuckerberg back in 2007, as he was anticipating passing the 500-shareholding-employee mark. This was reportedly one of the things that pushed Google to go public in 2005, and this conversation was well-before Facebook came to a settlement with the SEC that allowed the company to skirt the rule about reporting numbers if a company has more than 500 individual shareholders. I asked Zuckerberg if it would be a trigger to go public, and he said no and added, “disclosing information is the least of the issues I have with being a public company.”

Now, two things are obvious: A lot has changed since those early days, and Facebook will go public one day. That has always been the plan. No one has argued otherwise. And by virtue of time, growth and continued outside investment that date is a lot closer now than it was then. None of us really know for sure if it’ll happen sooner or later, but based on everything I know about Zuckerberg, disclosing financials isn’t going to make a bit of a difference on the timing.

Like Google in its pre-IPO days, Facebook is operating from the ultimate position of strength. Even if the Goldman deal hadn’t happened, the company wouldn’t hurt for cash. No one is going to force this company to go public before it is ready, and all the steps it’s taken in the secondary market make it less likely to happen any time soon, not more likely because they are addressing the very reasons companies used to go public.

January 03 2011


$1 Billion Isn’t Cool. You Know What’s Cool? $50 Billion. Goldman And Facebook Agree.

While everyone has been busy wondering when Facebook was going to IPO, most were looking past the first question: how is Facebook going to IPO? But not TechCrunch alum Evelyn Rusli and Andrew Ross Sorkin. Tonight the pair are reporting that Goldman Sachs has just led a major new investment in the social network. An investment that values it at a nice round $50 billion. And the likely reason is so Goldman can take Facebook public.

More specifically, Goldman has invested $450 million in Facebook while Russian firm (and current large stakeholder) Digital Sky Technologies threw in another $50 million for a total of $500 million in this round. But the round is more complicated than that as apparently Goldman will be able to unload some of its stake to DST, according to the report.

So is the IPO a done deal? Not exactly. While Facebook itself hasn’t given a timetable for the milestone, many were expecting it to happen in 2011. But more recent indications suggest it will more likely occur in 2012. Facebook, obviously, wants it to happen as late as possible so they don’t have shareholder to answer to. But that’s the thing, with all the investment they’ve taken, and the red-hot activity on the secondary markets, they already do have a lot of shareholders — they just don’t technically have to answer to them.


The SEC is said to be looking into whether or not that Facebook is improperly skirting around the rules for going public.

Either way, Goldman looks to make a a good chunk of change before the IPO as well. From the report:

In a rare move, Goldman is planning to create a “special purpose vehicle” to allow its high-net worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

If that doesn’t piss the SEC off too much, that is huge for the firm. That might not be so easy — with the special purpose vehicle option, Goldman is said to be trying to raise up to $1.5 billion for Facebook at that $50 billion valuation.

Remember that it was barely a month ago when we reported on Accel Partners selling off a big portion of their Facebook stock at a $35 billion valuation. Of course, they made something like a 247x return on that sale, so it’s hard to argue with it. A few weeks later, we noted that Facebook had hit the $50 billion mark in valuation on the secondary markets. With this investment, that valuation has just been validated.

As if The Social Network needed any more buzz leading up to its DVD release next week…

[image: 20th Century Fox]

June 03 2010

Facebook Investor DST Taps Another Senior Goldman Sachs Banker As Partner
Global investment group Digital Sky Technologies (aka DST), who has famously invested in major Internet companies such as Facebook, Zynga and Groupon, has made another key hire. The latest finance whiz to join the Russian investment firm as partner is John Lindfors, who will start there next September.
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