For all the talk about whether Microsoft wants to buy Facebook for $6-billion, or whether Facebook will do an IPO, or whether CEO Mark Zuckerberg is/was a genius for turning down Yahoo’s $1-billion offer, one thing that seems to be buried in the background is what do Facebook’s investors want.
In April 2006, Facebook raised $25-million in venture capital, which, at the time, squashed growing speculation the company was looking for a sale. The investors included some heavy-hitting Silicon Valley VCs – Greylock Partners, Meritech, Accel Partners – and ex-Paypal CEO Peter Thiel.
Based on the fact Facebook’s expects to have revenue of more than $100-million this year (much of its coming from a guaranteed ad deal from Microsoft, according to Valleywag), let’s assume/guess-timate the company’s revenue in April 2006 were $25-million. Then, let’s factor in the speculation Facebook was rumoured to be worth $750-million to $1-billion, and it had about 13 million unique visitors.
So what was that worth and how much an equity stake does $25-million get you?
For the sake of a good argument, let’s assume Zuckerberg was able to convince investors the company was worth 10X sales – giving it a pre-money valuation of $250-million. This would have given investors a 10% stake in a fast-growing company in the right space at the right time.
If you’re still with me, this 10% stake is now worth $600-million to $1-billion – a 24 to 40-bagger depending on how much you think Facebook is worth. Of course, it could be worth a lot more if the VC were able a bigger equity stake.
If you’re a VC with this kind of potential return possible, do you push Zuckerberg to pursue a sale or IPO? Or do let your bet ride a little while longer given Zuckerberg refused to throw in his chips at $1-billion to Yahoo?
What do you think? Is it time for Facebook to do an exit?
More: Just to keep things interesting, Zuckerberg is facing a lawsuit from three former Harvard classmates who allege he stole their code, design and business model when he worked for a start-up now called Connect U. ConnectU’s About Us includes this juicy paragraph:
“Over the course of development, we’ve had our ups and downs. We’ve cycled through several programmers, even one who stole our ideas to create a competing site, without informing us of his intentions. But we’ve been troopers. At first we were devastated and climbed into a bottle of Jack Daniels for a bit, but eventually emerged with a bad headache and renewed optimism. We weren’t going to lie down and get walked over like this.”
Update:TechCrunch and others have caught on to the Zuckerberg lawsuit angle.
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What Do Facebook’s Investors Want?
For all the talk about whether Microsoft wants to buy Facebook for $6-billion, or whether Facebook will do an IPO, or whether CEO Mark Zuckerberg is/was a genius for turning down Yahoo’s $1-billion offer, one thing that seems to be buried in the background is what do Facebook’s investors want.
In April 2006, Facebook raised $25-million in venture capital, which, at the time, squashed growing speculation the company was looking for a sale. The investors included some heavy-hitting Silicon Valley VCs – Greylock Partners, Meritech, Accel Partners – and ex-Paypal CEO Peter Thiel.
Based on the fact Facebook’s expects to have revenue of more than $100-million this year (much of its coming from a guaranteed ad deal from Microsoft, according to Valleywag), let’s assume/guess-timate the company’s revenue in April 2006 were $25-million. Then, let’s factor in the speculation Facebook was rumoured to be worth $750-million to $1-billion, and it had about 13 million unique visitors.
So what was that worth and how much an equity stake does $25-million get you?
For the sake of a good argument, let’s assume Zuckerberg was able to convince investors the company was worth 10X sales – giving it a pre-money valuation of $250-million. This would have given investors a 10% stake in a fast-growing company in the right space at the right time.
If you’re still with me, this 10% stake is now worth $600-million to $1-billion – a 24 to 40-bagger depending on how much you think Facebook is worth. Of course, it could be worth a lot more if the VC were able a bigger equity stake.
If you’re a VC with this kind of potential return possible, do you push Zuckerberg to pursue a sale or IPO? Or do let your bet ride a little while longer given Zuckerberg refused to throw in his chips at $1-billion to Yahoo?
What do you think? Is it time for Facebook to do an exit?
More: Just to keep things interesting, Zuckerberg is facing a lawsuit from three former Harvard classmates who allege he stole their code, design and business model when he worked for a start-up now called Connect U. ConnectU’s About Us includes this juicy paragraph:
“Over the course of development, we’ve had our ups and downs. We’ve cycled through several programmers, even one who stole our ideas to create a competing site, without informing us of his intentions. But we’ve been troopers. At first we were devastated and climbed into a bottle of Jack Daniels for a bit, but eventually emerged with a bad headache and renewed optimism. We weren’t going to lie down and get walked over like this.”
Update: TechCrunch and others have caught on to the Zuckerberg lawsuit angle.