Investors’ patience in waiting for IPOs from Facebook and the Zynga Game Network may finally be rewarded in the near future. According to a new Bloomberg report, both companies are starting to lay the necessary groundwork to make a strong initial public offering by instituting processing fees for each sale of company shares made by employees. Both Internet companies, to prevent putting equity in the hands of numerous investors besides the owners before an IPO is introduced, instituted the hefty pre-IPO share fees. It becomes increasingly difficult for control of ownership to be maintained the more employee stock reaches outside investor hands. Facebook and Zynga also want to keep the number of pre-IPO shareholders in small numbers.
The moment a company gains more than 500 shareholders they are required by the U.S. Securities and Exchange Commission to disclose financial details of their business that they may otherwise wish to keep private before an IPO is established. That Facebook and Zynga have instituted these fees is great news for investors looking to cash in on the ever-rising popularity of the social network and its more popular social video games partner; IPOs from both companies are closer than ever before.
Greg Brogger, the CEO of SharePost Inc., a group that handles the sales of shares in private companies, told Bloomberg that social networking giant Facebook has started charging a $2500 fee on employees looking to unload stock in anticipation of an IPO. The fee is imposed on Facebook shares that are currently traded between $5.84 and $6.82 through SharePost’s business. The 62 million player-strong FarmVille creators Zynga, on the other hand, are now charging exorbitant fees in their attempt to keep the company under its owners’ control and to prevent leaks in sensitive corporate information. A $4500 fee was put in place this past August. The fee was later raised to $6000 at the beginning of September. Evidence of these fees was found in a series of email exchanges between a former Zynga employee and Zynga Deputy General Counsel Karyn Smith, an attorney with Ropes & Gray LLP, Zynga’s San Francisco-based law firm.
A Zynga representative confirmed the fees saying, “Zynga charges a fee for the transfer of stock to cover some of the costs associated with arranging and overseeing sales of company stock.” CEO Mark Pincus had indicated as early as April that Zynga would be putting fees in place to keep control of the company tightly monitored.
Now investors anticipating IPOs from both companies can settle into a new waiting game. It’s possible that both Zynga and Facebook won’t be able to prevent current shareholders, particularly former employees, from selling their shares in the company even with the high fees associated with each sale. In the event that it appears ownership might be threatened, they may make an IPO before they want to. Curious investors should look into possibly shares in Facebook and other privately owned Internet business like LinkedIn through secondary sales service like SharePost.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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