With Facebook’s (NASDAQ):FB) IPO woes, it could up end up causing problems for its home state of California.
As the state expected more than a billion dollars in tax revenue to roll in after Facebook went public, after the company’s disappointing performance, cash could now only come in at the hundreds of millions, according to the LA Times.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
In addition to the state of California losing an immense amount of money, others will be hurt by Facebook’s stock. Small investors have been hit hard with losses in either the hundreds or thousands of dollars, reported Bloomberg.
And they plan to do something about it. A group of shareholders filed suit against Facebook and its underwriters, with claims that the company had disconcerting information prior to the IPO such as estimates that Facebook’s revenue would drop off in the future months.
While Facebook made this known to some Wall Street insiders, the general public wasn’t privy to this information.
Back to California, it faces a budget deficit of about $15.7 billion, reported The LA Times. Public schools, the court system and farmworker communities–just to name few-are already feeling the effects.
Back in January, California had the expectation that it would see a revenue increase next year thanks to a Silicon Valley recovery that Apple Inc. has benefited from as well as a rise in initial public offerings from less mature firms.
According to the Wall Street Journal, some economists had said California could benefit from the taxes of employees from post-IPO companies after they sell their stock. This also included the taxes on wages and stock sales from employees at older Silicon Valley companies.
But this could soon change as New York is emerging as the new capital for tech-start ups.
Move East, Young Entrepreneur
In a New York Times article, the shift to the other coast for tech start-ups has to do with the move to developing consumer products and applications as opposing to building framework for computing and the Internet in the old days of Silicon Valley. Many of the new start-ups see a benefit to moving to New York from the proximity to media, advertising and fashion industries.
And as the industry grows, the disadvantages of being outside Silicon Valley will decline.
Numbers show that a shortage of venture capital financing outside Silicon Valley for start-ups is falling. According to a recent report by the public policy organization, Center for Urban Futures, almost 500 start-ups in New York have received venture financing from 2007 to 2011. In addition, the number of venture capital deals in New York has jumped 32 percent since 2007, while other areas, including Silicon Valley, have seen their numbers fall.
And many major venture capital firms are opening their doors with New York offices.
Another benefit of the move is the low-key vibe found for tech-startups. Yes, low-key as New York isn’t full of tech start-ups. Other industries dominant it and those making their way here find it to be tight-knight community. Many have said they moved to New York because it was a “small-town vibe” reported the New York Times.
Should the state of California be worried about a migration to the other coast? Maybe. But in the short-term it should definitely worry about Facebook. It should be very worried.