Facebook's Failed IPO and the Era of Insider Capitalism

17 Pages Posted: 4 Sep 2012

See all articles by Stephen F. Diamond

Stephen F. Diamond

Santa Clara University - School of Law

Date Written: September 2, 2012


The initial public offering (IPO) of Facebook is the most important failed IPO in the history of the American capital markets. Explanations for the failure largely focus on the widely publicized problems at Nasdaq, the exchange venue where the offering took place, and the role of the investment banks that helped lead the IPO. This paper argues that the problems were likely caused by a confluence of two other important factors: the pressures of what I define as “fictitious capital” and the internal culture of the company itself created by Mark Zuckerberg, the founder and dominant shareholder of the company, aided and abetted by early investors such as the libertarian Peter Thiel. These factors suggest the emergence of a new period in capitalism that I call “insider capitalism” where key investors ally with founding entrepreneurs to exploit informational advantages to appropriate value. The paper thus suggests that there is a deeper structural and ideological problem extant in modern capitalism.

Keywords: IPO, Securities Law, Investment Banking, Capital Markets

Suggested Citation

Diamond, Stephen F., Facebook's Failed IPO and the Era of Insider Capitalism (September 2, 2012). Available at SSRN: https://ssrn.com/abstract=2140507 or http://dx.doi.org/10.2139/ssrn.2140507

Stephen F. Diamond (Contact Author)

Santa Clara University - School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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