Covestor manager Barry Randall, who runs the Crabtree Technology model, comments to e-Commerce Times on the much-criticized sale of Facebook (Nasdaq: FB) shares by prominent early Facebook investor – and current board member – Peter Thiel (pictured at right):
“Thiel is a venture capitalist, and this is what VCs do. They invest early and then liquidate their holdings once the company is public. Venture capitalists are also usually price insensitive,” [Randall] said.
It’s doubtful that Thiel looked at the recent decline in Facebook’s share price and said to himself, “‘maybe I should wait until the price goes up a little,'” Randall said.
For starters, Thiel invested $500,000 in Facebook in 2004 and redeemed over $1 billion in Facebook stock. “In other words, even with Facebook now half its IPO value, Thiel has made an astronomical return on his investment.”
The second reason for Thiel’s price insensitivity, Randall said, is that venture capitalists are by agreement forced to sell their public holdings in order to have capital to re-invest in much smaller, early-stage companies.
“That is their business model. And even though Thiel’s investment was from him personally, it’s easy to see why he would still view the investment as a typical venture investment, meant to be liquidated as soon as practical.”
Barry largely disagrees, that is, with those raising concerns about the unusual size and timing of Thiel’s sale, the negative signal it sends about the stock, or Thiel’s obstinate radio silence regarding the reason for his sale.
The Crabtree Technology model has no position in Facebook as of 8/24/12.
Image: Business Insider
