Valuations in Wonderland
So Facebook is worth $15 billion, making it the fifth most valuable Internet company in the U.S., right behind Google, eBay, Yahoo and Amazon, eh? Aside from all the news reports, who says so? No one handed the management a $15 billion check. The collective judgment of a large public market didn’t come up with that figure.
No, at this moment, it looks like exactly two, or maybe four, parties have determined that number, and they’re all in business together — the Facebook board; Microsoft, which says that its $240 million investment got it 1.6 percent of the company; and reportedly two unnamed hedge funds that each put in about the same amount as Microsoft for the same percentage. It’s the financial equivalent of Humpty Dumpty’s take on language: “When I use a word, it means just what I choose it to mean, neither more nor less.”
Nick Carr calls BS, and rightly so. “First, the investment is part of a broader deal, the details of which are unknown,” he writes. “Clearly, Facebook needs cash to support its growth, and the cash payment was a price Microsoft had to pay to nail down the partnership. It has to be seen in that light, not as a market-cap marker. Second, and more important, Microsoft’s investment is not financial but strategic. The company is currently engaged in a multi-front competitive battle under conditions of great uncertainty. Facebook forms one of the fronts, and partnering with the company is far more about gaining future strategic options and blocking the advance of a competitor (Google) than about making a financial gain through the appreciation of Facebook stock.”
Hey, I’ve got a deal for you. I need one person to send me $10 in exchange for a 0.000001 percent interest in MurrellCo, closely held maker of modestly entertaining word products. Voila — we are partners in a $1 billion company.
I’ll invest $10 for a 0.000001 stake in MurrellCo. Do you take paypal?
You want those 10 bones by cash, check, or google-checkout? And for that, what to we get? You keep giving us your .02 cents …
“John D. Blair said on October 25, 2007 at 1:14 pm: I’ll invest $10 for a 0.000001 stake in MurrellCo. Do you take paypal?
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LOL — I had clicked the comments section only to post exactly that. lol
“Do you accept paypal?” hahaha
I think Zuckerberg should make the valuation “real” by using the currency to acquire some real money-makers, and thus beef up his business model … perfect opportunity.
http://sramanamitra.com/2007/07/25/facebooks-monetization-strategy-part-1/
Sramana
I’m in for a 1.6 percent stake - as long as JM promises not to wear Zuckerberg ‘mandals’ to board meetings.
Is this the year 2000? As Yogi says, “It’s de ja vu all over again”, Big Whoopie time in SV…then everyone gets sober and finds a day job.
You should, I mean really should, speak about this with the professors in the entrepreneurship program at Berkeley.
Because this is exactly the process they teach for valuing a company before it goes public, and they claim this sort of shenanigans in meaningful.
And of course, even after a company goes public we have these crazy valuations. As though Apple, maker of fine desktops, laptops and iPods is worth more than ALL of IBM and if the future revenue streams of Apple are better than the future revenue streams of IBM with their enormous patent portfolios and all of the fundamental research they perform.
Most of this stuff is nonsense.