Venture Capital

by Mike Masnick

Facebook's Inflate-Our-Valuation Press Story Doesn't Turn Up Buyer

from the so-that's-how-it-works dept

We've been joking about the press stories covering college social networking company Facebook. It certainly looked like the company was following the office Skype System For Inflating Your Purchase Price(TM), by first getting some reporter to believe that they were actually holding out for a multi-billion dollar buyout offer, and then following that up with one of the company's existing VCs trying to justify that crazy valuation to the press as well. The whole question of $2 billion valuations seemed a bit silly -- and apparently the process didn't turn up the hoped-for sucker fast enough. Instead, the company has simply gone back to the VC trough and picked up a mere $25 million (along with the laughable claim that the company wasn't really planning to sell). It's worth noting that the original lead investor, Accel, is not the lead on this round. If they were, I doubt you would have seen them talking up the high valuation. So, here's the question: if they were trying to sell out for $2 billion (or even the $750 million that the rumor mill claims they were offered), at what valuation is the $25 million investment? You don't have to be much of a gambler to bet that it's significantly less than those numbers that were being bandied about... but the rumor mill probably didn't hurt valuation discussions with the new lead either.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    Hardy, Apr 19th, 2006 @ 2:05am

    Ain't worth it

    I even think MySpace is overpriced at 500+ millions. Not to mention, Facebook at 750 millions!

    reply to this | link to this | view in thread ]

  2. identicon
    Anonymous Coward, Apr 19th, 2006 @ 5:01am

    facebook isn't even good.

    facebook is garbage, i wouldn't pay $1/year for it.

    reply to this | link to this | view in thread ]

  3. identicon
    Anonymous Coward, Apr 19th, 2006 @ 5:26am

    many would disagree

    the average facebook user checks in 6 times per day - i certainly think that means your opinion is not shared by those in their target demo.

    reply to this | link to this | view in thread ]

  4. identicon
    Lee, Apr 19th, 2006 @ 5:38am

    Re: Ain't worth it

    From a financial standpoint Murdock already paid for the investment of buying (through advertisiing) MySpace. I'm not too sure I would so easily say it is not worth it.

    reply to this | link to this | view in thread ]

  5. identicon
    leah, Apr 19th, 2006 @ 7:33am

    Re: many would disagree

    its true...I am a year out of college and I check my facebook at least 8 times a day...i also post pictures, events and use it as a primary means of communication with college friends...and im graduated!!

    reply to this | link to this | view in thread ]

  6. identicon
    Trent, Apr 19th, 2006 @ 8:14am

    Hi Mike,
    Actually, its not at all unusual for the VC who led a prior round to allow a new VC, especially another tier 1 firm like Greylock, to lead the round. The firm will often require that as a term of participation, in fact. But I'd be very confident that Accel sure as hell went pro-rata on this round (that is, they invested as much as they could to maintain their ownership stake), so, in fact, they DID buy that higher valuation.

    If I were a betting man (I am not, thankfully), I would guess they raised that $25 million on a pre-money valuation of $200 million or so...

    All crazy talk, all the way around.

    Seen this movie before.

    reply to this | link to this | view in thread ]

  7. identicon
    Sean Feeney, Apr 19th, 2006 @ 10:05am

    Facebook is way better than MySpace

    Facebook has their act together a whole lot better than MySpace (and has a wealthier demographic, since college grads make much more than the average person), and should therefore hold out for more than MySpace was bought for. The potential for ROI is simply greater.

    reply to this | link to this | view in thread ]

  8. icon
    Mike (profile), Apr 19th, 2006 @ 10:11am


    Hey Trent,

    Yeah, I didn't mean to imply that it was odd that Accel didn't lead the round... just worth noting.

    And, yes, even if they did buy in to the max that they could, it boosts the official value of their original round.

    reply to this | link to this | view in thread ]

  9. identicon
    DJ Tek, Apr 19th, 2006 @ 11:03am

    It's true, facebook has its stuff together. It's a lot more organized and efficient. BUT i doesn't allow your creativity to be conveyed in your profile. Its very limiting. Facebook is also a college fad. I can promise you a senior would NEVER check his facebook as much as a freshman would (8+times a day)

    reply to this | link to this | view in thread ]

  10. identicon
    Swati, Apr 19th, 2006 @ 11:41am


    I can assure you, as a 4th year student myself, all of my 4th year buddies check my profile enough times during the day to shock the hell out of you.

    reply to this | link to this | view in thread ]

  11. identicon
    moataz, Apr 19th, 2006 @ 1:37pm

    Facebook valuation


    Bambi Francisco is reporting that the pre-money valuation was $525M.

    here is the link

    reply to this | link to this | view in thread ]

  12. icon
    Mike (profile), Apr 19th, 2006 @ 3:35pm

    Re: Facebook valuation


    Thanks for the link! Someone else told me privately that it was around $500 million as well... though I'm not sure I buy it.

    That would mean Greylock bought in for like 3% or so of the company, which is a *TINY* percentage this early in the game. I'd be surprised if that were the actual valuation, but if so, good work by the Facebook folks to pump up the valuation.

    reply to this | link to this | view in thread ]

  13. identicon
    Keith Hollins, Apr 19th, 2006 @ 8:15pm

    Worth pausing & thinking through..

    Folks evaluating valuations of facebookish ventures that rely for revenue generation on some "para-aids" rather than the core offering should really think through.. Make no mistake, I think Facebook is great & I am happy to see that money in their pockets rather than folks from Exxon.. Three cheers for them ..but here are my two cents..

    With all the advancements in technology, evolution of user behavioral model, and ubiquity of on-demand solutions, do we really have the visibility problem? why people think users who visit facebook pages will also buy books from there? My contention is - a company which can get the best book prices can succeed and spread word without really advertising or associating with facebook..and people will not buy books on facebook service if they don't get best deals there.. (selling book is just one example it applies for everything)

    With the service model people are going to use best of the breed solutions.. web 2.0 is not going to be the world where you have to visit a remote bazaar to purchase something so you shop everything whenever you visit that bazaar (a website).. the bazaar is on local desktop and it is going to be dynamically configured with influence from community you trust and not some banner ads.. For certain there is going to be seamless integration of various services in user's personal infospace..if facebook is good for networking it will be used for "only" is irony that web 2.0 companies who focus on information dissemination, community contribution, word of mouth marketing – when it comes to their own revenue - rely on ads- which is the most inefficient way of doing business.. if these forerunners can live without advertisements, why they feel other people will continue to pump in blindly into advertisements.. Comparison with TV advertisements is plain wrong as there was no concept of grass root efforts – only option was brand marketing.. Banner ads just don’t work on smart Internet savvy crowd.. Google advertisements are hugely successful because it is really their core offering. When someone is searching for services.. they are searching for those ads also.. people advertising serve exactly those needs of users.. As far as contextual ads on Google publishing network are concerned- Google paid 90 million to settle click fraud & someone was discussing he can not buy a cup of coffee with adsense.. Also remember Google is harvesting money in web 1.0 and they haven’t received the green jacket for Web 2.0 competition yet .... No dreams here but a personal infospace widget hosting multiple service plug ins is not far fetched especially for facebook audience. So don’t assume just something is put on facebook site - people will start using it .. While talking about futuristic numbers some thinking about futuristic revenue channels is absolutely necessary.. Haven't seen much of that.. it seems there is simplistic attitude of somehow get (rich) people hang out at your place – you can cut their pockets by hook or crook (we will figure out that later)..

    Of course, while funding any company the team is very important element & if facebook people have pulled out wonders up to now they always have better chance of getting the final story right.. So not saying this valuation is not worth it..but it is on the assumption they are coming up with innovative revenue channels and not sitting there complacent..

    reply to this | link to this | view in thread ]

  14. identicon
    Dominikz, Jan 6th, 2011 @ 4:09pm

    100 X

    500M valuation in under 4 years

    reply to this | link to this | view in thread ]

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