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Facebook Said to Put Off IPO Until 2012 to Buy Time for Growth

Facebook Inc. will probably put off its initial public offering until 2012, giving Chief Executive Officer Mark Zuckerberg more time to gain users and boost sales, three people familiar with the matter said.

Facebook would benefit from another year of growth absent the added scrutiny that comes with a public listing, instead of holding an IPO in 2011 as investors speculated, said the people, who asked not to be identified because Facebook doesn’t discuss share-sale plans. Still, Zuckerberg, who holds board control, could push for a stock sale at any time, they said.

Waiting lets Zuckerberg, 26, hone the skills needed to steer a company that issues quarterly results while facing criticism on such matters as user privacy. Facebook, valued at $24.9 billion, would use the time to propel its user base beyond the 500 million mark reached this month and add to sales that two of the people said may double to at least $1.4 billion in 2010 from $700 million to $800 million last year.

“The burden of being public has never been greater,” said Kevin Landis, who manages about $260 million at Firsthand Funds in San Jose, California, and has invested in the technology industry for 16 years. “Zuckerberg doesn’t have to put his name at the bottom of four 10-Q statements every year and attest that everything in there is true or else he’s responsible. The minute it’s public, he does.” Landis doesn’t have direct knowledge of Facebook’s IPO plans.

Jonathan Thaw, a spokesman for Facebook, owner of the world’s largest social network, declined to comment. Zuckerberg, in a television interview this month, said Facebook will go public “when it makes sense,” without elaborating.

Pressure Allayed

Some investors had speculated a share sale might happen in 2011 after venture capitalist Jim Breyer, a member of Facebook’s board, said in January that the Palo Alto, California-based company isn’t focused on a 2010 sale. Instead, Facebook’s management is trying to woo more users and developers, Breyer said at the time.

Startups are often urged to sell shares by employees and investors eager for a return on their equity. In Facebook’s case, some of that pressure has been allayed by private sales, often facilitated by such exchanges as SecondMarket Inc. and SharesPost Inc., which help find buyers for startup shares.

SharesPost values Facebook at $24.9 billion, more than double its value in March.

Zuckerberg’s Challenges

Zuckerberg faces a range of challenges, including management of a rapidly growing workforce and rising competition from companies including Twitter Inc., the blogging service that has amassed more than 190 million monthly visitors.

Facebook is also contending with heightened regulatory scrutiny over how it handles users’ personal data. And it’s up against a lawsuit that contests company ownership. A New York man, Paul Ceglia, claimed in state court in June that he owns an 84 percent stake, based on an April 2003 contract. Facebook has said the lawsuit is “frivolous, if not outright fraudulent.”

“If they have other sources of capital, the company would probably be better off deferring an IPO until Zuckerberg had more experience under his belt,” said Ray Valdes, a San Jose, California-based analyst at Gartner Inc.

Facebook’s timetable may disappoint technology investors who speculated an IPO would encourage other startups to wade into the public markets. Venture-backed IPOs dwindled in the past 2 1/2 years as the financial crisis wiped out investment banks such as Lehman Brothers Holdings Inc. and Bear Stearns Cos. and forced many hedge funds to close.

IPO Dearth

This year, 40 companies put off or have withdrawn IPOs in the U.S., according to Bloomberg data.

“The companies that went public in the second quarter had to have readjusted price expectations on average,” said Hans Swildens, founder of Industry Ventures LLC, a San Francisco-based investing firm that owns a Facebook stake. “The capital markets are swinging week by week. It’s a very hard time.”

Facebook, founded in 2004, now has about 1,400 employees. Investors include Accel Partners, Microsoft Corp. and Elevation Partners LP, the private-equity firm among whose founders are Bono and Roger McNamee. Besides Zuckerberg and Breyer, board members are Internet entrepreneur Marc Andreessen, money manager Peter Thiel of Founders Fund and Donald Graham, CEO of The Washington Post Co.

Zuckerberg holds board control, according to “The Facebook Effect,” a chronicle of the social network’s origins by David Kirkpatrick.

Silicon Valley ‘Watershed’

Elevation Partners has bought Facebook shares in private transactions that total $210 million, a person familiar with the matter said in June. Digital Sky Technologies, a Russian investor, has accumulated a stake of almost 10 percent, people familiar with the matter said in May.

Mutual fund managers and individual investors want their own chance to invest in Facebook’s growth, said Ted Hollifield, a partner at law firm Dorsey & Whitney LLP in Palo Alto.

“There’s definitely the market demand and appetite for a very successful IPO,” said Hollifield, who works with venture capital firms and startups. “Facebook’s IPO is going to be a huge watershed for the whole Valley.”

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Ari Levy in San Francisco at alevy3@bloomberg.net; Douglas MacMillan in New York at dmacmillan3@bloomberg.net.

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