For Internet companies going public, the founder's letter is becoming a ritual with a purely symbolic value, a rite of passage into the adulthood of public markets. Larry Page and Sergey Brin started it when Google (GOOG) went public in 2004. Andrew Mason raised it to absurd new heights when Groupon (GRPN) launched its IPO last year.
Now Mark Zuckerberg's has tried his hand at the founder's letter, the naïve declaration of the company's startup ideals. Whether thrust defiantly into the faces of would-be shareholders or proffered delicately as a corporate heirloom of inestimable value, such epistles are doomed to enter into a slow, painful strangulation as market forces have their way.
CEOs of companies going public will occasionally include a letter to shareholders in IPO prospectuses, but it's usually no more than a bit of PR, a friendly cover letter as meaningless as the stock photos that sometimes clutter the filings. But the founder's letter is different. It is a unique product of Silicon Valley, where startups grow up as hybrids of social idealism and cold-blooded capitalism.
Google's IPO prospectus began with an infamous letter that boldly declared: "Google is not a conventional company. We do not intend to become one" before asserting, "We will optimize for the long term rather than trying to produce smooth earnings for each quarter. We will support selected high-risk, high-reward projects."
But as institutional investors came to own a larger piece of Google, and as many of the company's employees became its shareholders, the realities of being a publicly traded company began to sink in. Google became quite adept at the earnings game it first shunned. By last summer, in Larry Page's first earnings call with investors since being reappointed as CEO, his defiant rhetoric had been toned down. "We may have a few small speculative projects happening at any given time but we're very careful stewards of shareholder money," page told analysts and investors on the call. "We're not betting the farm on this stuff."
When Groupon filed to go public last June, Mason included in the prospectus a founder's letter that, like Google's, shrugged off standard investor concerns like quarterly earnings -- only Mason employed a flakier rhetoric. "We are unusual and we like it that way," Mason said, before rattling on about fire-dancing classes and the importance of not being boring.
Mason also warned would-be investors that Groupon would "invest in long-term growth... regardless of certain short-term consequences" and make decisions based on "what we feel in our gut to be great." Then, in what must be one of the most irreverent lines in a CEO letter to shareholders, "Our customers and merchants are all we care about." Groupon, trading 15% above its $20 offering price, will deliver its first earnings report as a public company next week. Any disappointment in that or future earnings reports could result in investor pressure that adds a third group to the list of things Groupon cares about -- shareholders.
In the IPO prospectus Facebook filed Wednesday, Zuckerberg wrote a founder's letter that is more conciliatory than defiant in tone than Groupon or Google's letters. The harshest phrase he used was "we've always cared primarily about our social mission." But the problem is, when he describes that social mission, he ends up sounding pious and, well, plain wrong.
