Did Facebook IPO Ruin Fundraising For Startups?

By Julie D. Andrews 

A missive posted by Paul Graham, founder of investment firm Y Combinator, warned that there may be funding hurdles for startups in the future as a result of Facebook’s less-than-dynamic initial public offering performance.

In the note, which appeared on the company’s website, Graham seemed certain that the Facebook IPO has hurt the funding market for early-stage startups. The two main concerns he outlined were:

  • It may now be harder for startups to raise money at all, regardless of price; and,
  • Companies that previously raised money at high valuations will now face “down rounds,” which can be damaging.

His advice: Lower funding expectations, because no one really knows how much the funding door for social is still creaked open.

Companies such as Pinterest, Quora, and Spotify reportedly raised large sums of money in the weeks charging up to the social network’s IPO, perhaps to safeguard against any possible fall-out.

On the flip side, though, others point out that regardless of what the Facebook IPO is called — calamitous, disastrous, an absolute flop (the disgrace!) — here’s the truth of the matter: The company is still worth some $60 billion, which, points out Fred Wilson, managing partner of Union Square Ventures, is 10 times its estimated annual revenue and 25 times its estimated free cash flow, GigaOM reported.

Let’s be honest: It’s not too shabby, is it?

Whether or not the Facebook IPO burst a bubble is up for debate, but for startups, to step back and consider how much funding they really need to raise in order to make it happen, in our book, can only be a good thing.

Readers: Do you think other companies in the social media and tech sector are feeling the ripple effects of the Facebook IPO?

Image courtesy of Shutterstock.