If I could buy any stock in the world…. (Part 2 of 2) – Buying Facebook stock before the IPO

By: ispeculatornew
Date posted: 10.14.2010 (4:24 am) | Write a Comment  (2 Comments)

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Yesterday I explained why I would be the first in line to buy stock of Facebook. Doing so is not straight forward right now though. The problem of course is that some say the Facebook IPO could be delayed for a long time, and who could blame the social network, it is clearly working for them.

Buying the stock

Here comes the very difficult part. Of course, Facebook is not a public company and it will not become one for some time if we trust founder Mark Zuckerberg. To be honest, we understand his position and would hopefully do the same. That does make things much trickier for those of us who want exposure to the most undervalued company in the world though. Facebook is a private company but it does have plenty of stock circulating and even announced a 3rd stock split on October 1st. So we did an exercise. Take a look at the chart on the right. Basically, you need to buy stock from someone who owns some or gain exposure to those who do.

Many, if not most, Facebook employees as well as senior executives and founder Mark Zuckerberg hold important quantities of stock and have sold some. The problem is that since these are private sales, they occur through websites/brokers such as Sharespost which has many restrictions and costs involved. First off, you need to be a qualified investor, meaning a lot of liquidity and a high net worth. Also, since you will be spending 2500$ in trading fees, you are not doing this to buy 3-4K of stock. You need to buy much more.

Other investors include Private Equity Funds, which are even more difficult to gain exposure to than Facebook, a few individuals (can always try contacting them but I’d say your chances are close to nil!). So that leaves you with 2 corporations that I was able to find.

#1-Microsoft has a stake in Facebook. The problem is that it is such a huge company that buying a Microsoft share is hardly giving you any exposure. It is basically a worthless option

#2-Digital Sky Technologies, a Russian private holding company holds a fairly large stake in Facebook as well as many other big names such as Zynga and some Russian and Asian web companies. Digital Sky is private though so you cannot buy a stake. However, Tencent, a Chinese company traded on the Hong Kong and US markets does hold a stake in Digital Sky. Since we are dealing with a holding company that holds a stake in a private holding company which itself holds a stake in Facebook, it becomes very difficult to estimate how much exposure Tencent has towards Facebook but in all honesty, it is your best option at the moment. Now Tencent is now traded as an ADR on US markets but rather as a “pink sheet”. There are a few differences but basically you are not buying on an exchange but rather from a broker. You can read more about the differences here.

A few questions…!

Do you agree that Facebook looks like a great purchase?

Would you consider buying through Tencent or are you a qualified investor who would consider doing it through Sharespost?

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  1. Comment by Zavi — October 14, 2010 @ 2:07 pm

    hey, that’s a great post! I really like the visual graph.

    I’m not a qualified investor and I’m not convinced yet in buying in Tencent. If I want to buy Facebook, I rather buy Facebook itself, not some derivatives (that’s my point of view).

    Rumors slate Facebook IPO for 2012 too… Of course with the buzzzzz it will be such a hot issue!!!! Let’s see 😉

  2. Comment by IS — October 14, 2010 @ 4:28 pm

    @Zavi! Thanks, love it too! And no doubt investing in Tencent is far from perfect and I will probably have to wait for the IPO. Hoping it will happen in 2012!those early investors will make a killing!

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