FORTUNE — Facebook is going public tomorrow, which means that it’s spent the past week getting ripped apart by bloggers, analysts and professional investors. You know, the same people who built Facebook up over the past several years. It’s basically become a tech IPO right of passage. Just ask Groupon (GRPN) or Zynga (ZNGA).
Some of the anti-hype has merit, such as worries that other large Facebook (FB) advertisers will follow General Motors (GM) out the door. But the knock I’ve heard most often is seriously misguided: That Facebook insiders — those who should know the company best — are signaling peak value by virtue of their decision to sell shares in the IPO. As Felix Salmon wrote: “This seems to be the point at which the smart money is getting out of Facebook.”
First, no “smart money” is actually getting out of Facebook. For example, take a look at Accel Partners, which is Facebook’s largest outside shareholder. The venture capital firm plans to sell around 25% of its position, which means it would still hold around 150 million shares. Moreover, that sizable remainder would be locked up for at least the next three months. Russia’s DST Group plans to sell around 37% of its position, and will be required to hold onto its remaining 85 million shares until next May. And then there is T. Rowe Price, which isn’t selling even one of its 18 million shares.
In other words, insiders are generating partial liquidity while remaining… well, insiders. It is true that venture capital investors often don’t sell shares at IPO, but that’s usually more because they can’t than because they don’t want to. In fact, many VCs prefer trade sales to IPO because it represents a clean exit, rather than a long bleed-out over which they have little control.
The counter-example that gets thrown back here is Google (GOOG), whose lead venture capitalists — Kleiner Perkins and Sequoia Capital — held onto all of their shares at IPO. But, as I’ve previously pointed out, the parallels are strained. First, Kleiner and Sequoia only had been investors in Google for five years at the time of IPO. Accel, by contrast, first invested seven years ago out of a fund that is expected to return all capital to limited partners by the end of 2014. In other words, it has reasons to begin selling down that have little to do with Facebook’s future earnings potential.
Second, many Facebook insiders are later-stage investors whose entire investment thesis involved a partial share sale at IPO. Firms like Elevation Partners and Goldman Sachs (GS), which invested in 2010 and 2011, respectively. Google simply didn’t have those types of investors.
Third, at least five senior members of Google management sold shares at IPO: CEO Eric Schmidt, co-founders Sergey Brin and Larry Page, sales chief Omid Kordestani and head of engineering Wayne Rossing. By contrast, no senior Facebook exec except for CEO Mark Zuckerberg is offering shares at IPO.
In fact, the only relevant similarity between Facebook and Google here is that they both went public due to an archaic federal regulation known as the “500 shareholder rule.” So archaic, in fact, that it was expanded to 2,000 just last month (not quite soon enough for Facebook to reverse course).
Why does this matter? Because it belies the notion that either company went public at what they believed to be “peak Facebook” or “peak Google.” And if the company’s insiders believed that to be the case, why hold onto any shares at all (let alone most of their shares)? Or why not sell more of them on the secondary markets over the past couple of years, when they could get similar value to the IPO price?
To be clear, this isn’t to say that Facebook does, or doesn’t, reserve an $80 billion valuation. Or a $100 billion valuation. It’s simply to say that if you believe the price is right, don’t be scared off by overblown tales of insider sales.
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