Explaining Southern California's economy

Facebook v. SpaceX, Part II: The agony and the ecstasy



Blast off! Hawthorne-based SpaceX has had a very good week.

Last week, I wrote about how two California companies — Facebook and SpaceX — were experiencing big events. Facebook of course was staging its long anticipated IPO, immediately after which its CEO staged his own private big event, a marriage to longtime girlfriend Priscilla Chan. SpaceX was expected to launch the first mission by a private company to service the International Space Station. That didn't happen over the weekend, but it took place on Tuesday. SpaceX's CEO has been married twice already, so celebratory nuptials weren't on his agenda.

Of the two big events, you'd have expected Facebook's IPO to be more-or-less hassle-free, as it minted numerous billionaires and millionaires. Meanwhile, SpaceX was shooting rockets into space. Millions of things could have gone wrong.

The way things actually turned out is a study in contrast. Astonishing contrast.


Oh, what a mess this Facebook IPO has become!

Facebook Debuts As Public Company With Initial Public Offering On NASDAQ Exchange

Spencer Platt/Getty Images

The Facebook IPO now seems so long ago, now that everyone is complaining about how it was screwed up.

I'm resting up a bit this week and spending some quality time with what I think could be the next big social-media site, Quora. Head on over there and watch me answer some questions. And watch other Quorians do it, too.

But I do need to update everyone on the Facebook IPO mess. And it's a very big mess. You can read the Wall Street Journal's blow-by-blow here, or jump over to Business Insider and read Henry Blodget all but accuse Facebook CFO David Ebersman of violating SEC rules (which is ironic, given that Blodget himself is banned for life from the securities business for breaking the rules). At Reuters, Felix Salmon offers his own analysis — also laying much blame on Ebersman, but pointing to Morgan Stanley lead technology banker Michael Grimes as someone who botched his job.

Circumstantially, it seems what happened — apart from the computer screw-ups by NASDAQ that delayed trading on Friday — is that several of the major banks involved in the Facebook IPO, such as Morgan Stanley, Goldman Sachs and JP Morgan, cut their estimates for Facebook's second-quarter and full 2012 financial performance during the IPO "road show." They were motivated by Ebersman allegedly conveying information to them, as well as by an amended IPO filing with the SEC. 


Los Angeles' own Michael Grimes led the Facebook IPO

Justin Sullivan/Getty Images

The Facebook website is displayed on a laptop computer. The company's $16-billion IPO was led by a California kid who grew up anything but rich.

Talk about a local boy done good! Facebook will begin trading shares tomorrow. The IPO values the company at $104 b-b-billion, which is a mere $4 billion more than many were expecting. The lead underwriter on the deal, Morgan Stanley, has now led most of the big tech IPOs of the past year or so and stands to make around $40 million on the deal. Which doesn't sound like much. But still...

(Think of the lead underwriter as a sort of head financial guide, making it possible for a company to transition from a private to a public existence.)

And whom do we have to thank for all this banking magic? None other than L.A.'s own Michael Grimes. This is from a DealBook profile of Grimes, 46, which appeared a few days back:

From an early age, Mr. Grimes seemed headed for a career in technology. Growing up in East Los Angeles in a modest two-bedroom house with his sister and parents, Mr. Grimes attended the Polytechnic School, a prestigious prep school in Pasadena, Calif. His father, David Grimes, the owner of a mapping and land-surveying business, worked Saturdays to afford his son’s $5,000-a-year tuition.

At the age of 12, Mr. Grimes asked his father for the latest Apple computer, a $2,500 machine that many of his wealthier friends owned. His father made a deal with him. He would buy the machine if his son converted some computer programs his father had developed into Apple’s programming language.

“He did it in one summer,” said David Grimes. “I guess I pushed him in that direction.”