Early Days of Facebook Fundraising shows Power of Regulation D 506 Offering

by / Thursday, 25 September 2014 / Published in Regulation D

For those of us who study early-stage company growth and look to past examples, Facebook is a prime one. From its early days of raising private capital to its often ballyhooed IPO, it is a model for rapid, sustainable, investor growth. However, what is often overlooked is that its path to public markets was paved by many rounds of private placement offerings.
In particular, Facebook relied heavily on rule 506. And fortunately, this is not mere speculation, as all of its Form D filings are available for inspection as public records.

What is absolutely fascinating is that Facebook initially filed a form D for private offering consisting of only roughly six thousand dollars. Thereafter, they followed a seesaw path of large to midsize offerings, with a high of twenty seven million dollars (presumably because their capital needs changed from time to time).
The following links show the first six private placement offerings made under rule 506 by Facebook:

1. First 506 Offering for $6k
2. Second 506 Offering for $12M
3. Third 506 Offering for $45k
4. Fourth 506 Offering for $78k
5. Fifth 506 Offering for $50k
6. Sixth 506 Offering for $27M

Following the above offerings, Facebook ultimately went public having reached the 500 private placement investor limit. In fact, it is well-known that Facebook would’ve preferred remaining private, but was forced to go public because of the investor limit. In other words, Facebook was very content relying on private placement offerings to raise capital, due to the manner in which the issuer can control its relationship with investors. Public offerings, by contrast, impose myriad disclosure and ongoing record-keeping and filing requirements upon the issuer (not the least of which includes Sarbanes Oxley) that can add significant overhead and liability.

In short, Regulation D, coupled with a very strong company can serve as the primary investor framework for raising capital. Moreover, the JOBS ACT has increased the private placement investor limit to 1000, making going public an option that the issuer can take much further down the road (in fact, some people have referred to the JOBS ACT as the Facebook Act).

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