I’m still on vacation, but catching up on my reading, I see that Facebook is "years away" from going public, said founder Mark Zuckerberg last week. I also see Facebook will have more than 700 employees next year, in 2008. So, like Google and Microsoft, it’ll be forced to IPO against its will sometime next year, if those employees all have options (as they likely will).
POSTSCRIPT: I stand corrected: A Letter to Facebook’s Founder covers how the law was recently changed. Below, the rest of my original article.
To quote what Barron’s Online wrote about Google back when it played the "we won’t IPO until ready" game:
Google appears to have triggered a fairly obscure provision of the 1934 Securities and Exchange Act that lays out circumstances under which companies not listed on a securities exchange must report financial results in public filings to the SEC.
CEO Eric Schmidt won’t publicly discuss the possibility of an initial public offering, but SEC regulations make it likely that the Internet search-engine outfit will have an IPO within 6 months.
To trigger the provision, a company must have at least $10 million in assets — as Google surely does — and at least 500 shareholders of record of any class of equity securities, a definition that includes employee stock options.
Google almost certainly has more than 500 employees with stock options. For one thing, its website says that the company has more than 1,000 employees. And most probably get stock options: Its online job listings site ranks "pre-IPO stock options" as one of the "top 10 reasons to work at Google."
To follow the rules, Google would have to start making quarterly financial filings 120 days after the end of the fiscal year in which it crossed the 500-employee level. Ergo, if you assume that the company has a December year-end, the first Google 10-Q should show up at the SEC by the end of April.
As Google found out, the rules did indeed cause its IPO decision to be "accelerated," as it said in its IPO filing:
A number of factors weighed on the other side of the debate. Our growth has reduced some of the advantages of private ownership. By law, certain private companies must report as if they were public companies. The deadline imposed by this requirement accelerated our decision. As a smaller private company, Google kept business information closely held, and we believe this helped us against competitors. But, as we grow larger, information becomes more widely known. As a public company, we will of course provide you with all information required by law, and we will also do our best to explain our actions. But we will not unnecessarily disclose all of our strengths, strategies, and intentions. We have transferred significant ownership of Google to employees in return for their efforts in building the business. And, we benefited greatly by selling $26 million of stock to our early investors before we were profitable. Thus, employee and investor liquidity were significant factors.
As the filing (and the Barron’s article) notes, Google could have stayed private by releasing financial information as it if was public. But doing that meant it didn’t get any of the advantages of being public. I’d expect Facebook will reach a similar decision. FYI, it is at 300 employees right now, so it does still have time before hitting that magic 500 mark.