6 Ways to Buy Stock in Facebook before the IPO

in Investing Trade by Travis — May 26, 2011 at 11:08 am | 20 comments

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With the social-media bubble in full swing and the recent huge IPO of LinkedIn, many of you may be interested in buying stock of Facebook before its expected IPO in 2012. Unless you are part of a venture capital firm’s strategy or connected in some way to an investment bank, getting your hands directly on some stock during a start-up company’s financing rounds can be difficult. It’s hard to consider the company a start-up given a Facebook value of around $80 billion dollars, but the company continues to garner more and more money through large investment companies such as Goldman Sachs.  Don’t let these hurdles deter you, if you want to invest in Facebook stock there are numerous direct and indirect avenues to take in order to buy into the company.

First let’s start with the indirect methods as these are better suited for those of you without millions of dollars laying around to invest.

1.) Invest in T. Rowe Prices’ mutual funds. T. Rowe Price invested $190.5 million in stock of Facebook during the 1st quarter of 2011 and allocated the shares across a few different mutual funds according to public documents.  The following 3 funds have less than 1% invested in Facebook, so it will not make or break each of the funds regardless of what happens come IPO time.  Investing into these mutual funds is the easiest and safest way to buy a piece of the Facebook stock pie since they are publicly traded mutual funds, however, this investment may not give you the leverage in Facebook you hope to obtain.

- Media & Telecommunication Fund: PRMTX with 0.528% of the fund’s net assets.

- Science & Technology Fund: PRSCX with 0.354% of the fund’s net assets.

- New America Growth Fund: PRWAX with 0.350% of the fund’s net assets.

2.) Buy Shares of Mail.ru on the London Stock Exchange. Mail.ru (Ticker: MAIL) is a recently publicly traded company out of Russia who boasts a large free email service within Russia (think Hotmail back in the day).  They have a huge backing from privately held Digital Sky Technologies (DST), an internet investing group, which continues to invest early and often in big, up and coming internet companies.  Rumors believe DST has invested approximately $500 million to date and some of its early investments are up eight fold with a Facebook value of $80 billion dollars.  Through DST, Mail.ru has a 2.4% stake in Facebook stock.

3.) Buy into Naspers Limited. Naspers is a huge South African media company which bought a 28.7% stake in Digital Sky Technologies last July.  Through buying shares of Naspers, you are buying into Digital Sky, which gives you money in Mail.ru, in turn buys you stock of Facebook.  A bit of a round about way to invest in Facebook, but Naspers trades on a variety of exchanges and is easy to buy in the US.  Here are the tickers on the various exchanges:

- US over-the-counter: NPSNY

- London Stock Exchange: NPSN

- Johannesburg Stock Exchange (JSE) Limited: NPN

4.) Just buy shares of Microsoft. Not very exciting and, again, a fairly indirect way of obtaining Facebook stock, however, Microsoft does own 1.6% of Facebook.  Also, Microsoft has a search deal in place to use its search engine on Facebook and that adds to the revenue it can make via Facebook.  With the size of Microsoft, making a couple billion here and there through Facebook will probably not move the stock price much.

5.) Goldman Sachs. We all would love to have enough money to give to Goldman to invest for us, but that is for only a few.  Goldman pumped $450 million into stock of Facebook earlier in the year, allowing its clients to invest with a $2 million dollar minimum, they must hang onto the shares until 2013, and the shares cannot be traded on a private marketplace (via NYTimes).  For the rest of us small fries who don’t have $2 million bucks, you can simply buy Goldman shares similar to investing in Microsoft.  The $450 million Goldman invested is less than 1% of its almost $1 trillion in other investments, so a small investment in Facebook is not going to move to the stock price from a Facebook IPO.

6.) Buy direct shares on the secondary market via SharesPost or SecondMarket.

SharesPost and SecondMarket is simplest way to directly obtain Facebook stock through online auctions.  However, there are some major caveats.  For the most part, both companies do the same thing in auctioning off privately held shares of various companies.  Both are free to sign up, but you need to be an “accredited” SEC investor to participate in a stock Facebook auctions.  Being an “accredited” SEC investor is very similar to participating in a hedge fund.  You need to have a net worth of at least $1 million not including your house or make over $200,000 per year (or $300,000 if married) and expect to make a similar amount going forward.  In other words, you need to be fairly rich and rightly so.  Most of the Facebook stock auctions involve buying blocks of shares and not 100 or 200 at a time.

Hopefully, this list gave you some ideas on how to buy some shares of Facebook.  It’s not perfect but anytime you attempt to invest in a company pre-IPO it presents some difficulties.  As always, make sure you do your research and figure out if you believe Facebook is currently overvalued or not and whether or not Facebook stock will be a good investment going forward.

Related posts:

1. 5 Ways to Learn Option Trading Successfully
2. Why Google should fear Facebook adding a Search Engine

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