The Facebook IPO offers concrete lessons for investors. First, look at the leadership of the company. Are they prepared to be transparent? Do they understand how to manage a publicly traded company?
"Maybe it takes a different type of leader to run a publicly traded company," says Dov Hirsch, senior director of corporate communications for Alana Health Care and a frequent commentator on social media. "A lot of social media companies have young leadership. They're not investor-relations managers. What they do is the opposite of that."
"For these emerging companies, they need to be looking at whether or not they're ready to be publicly traded, whether they have the leadership in place," he adds.
Next, investors should look at the company's plans to generate revenue. Does it plan to make money through advertising? Does it plan to offer a product or service at some point in the future?
Take Twitter, for instance, a company that has yet to go public but is rumored to be considering it. Like Facebook, it already has millions of users and is growing quickly. Also like Facebook, it is an innovative way to share information and is trying to develop models to generate revenue. But if Twitter were to go public, potential investors should consider what the company will be producing in 10 years. Will people be sharing information in a new way in a decade? Will Twitter even be relevant?
Finally, if you're not investing in a company that provides a product or service, understand what makes it unique. Does it have the ability to change and adapt? Or it is just a fad, like MySpace?
"With Facebook, you're not investing in the existing business. You're investing in the potential," says Hirsch. "You're not investing in a product you can look at and touch and feel or a service. You're investing in 800 million people."