

The "$15 Billion" Nonsense - razorburn
http://www.roughtype.com/archives/2007/10/the_15_billion.php

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byrneseyeview
That's true enough. Of course, it applies to every other stock, too: Google's
~$200 billion market cap is based on the price of the last trade, which for
all we know was a 100-share buy that mostly constituted an investment in
smugness. Since there are so many small investors, and since large investors
have lower turnover, the vast majority of investment transactions are non-
representative, but they're still the best information we have.

It wouldn't be especially surprising if MS overpaid -- but I don't think
that's what Facebook wants. Companies usually like to IPO at their peak
valuation. Investors very rarely want to buy discounted goods during the IPO
(which is why many startups would _under_ value their early venture capital
investments: if they were funded at $.25/share in January, got another round
at $5/share in July, and were going public at $20/share in December, they give
new investors a comfortable trendline to look at. Swap the last two
valuations, and you start scaring people).

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Goladus
The whole point is that microsoft is not really an 'investor' in terms of a
general market. Microsoft would have competitive reasons for buying a stake in
Facebook that go beyond a direct return on investment, which is all a normal
investor is looking for.

If Microsoft has a 98% of a map to buried treasure, but a critical 2% is
missing, that 2% is worth a lot to Microsoft, but nothing to anyone else.
Unless MS is willing to buy it from you, that is. If 1.6% is all they really
need of Facebook, the rest could be worthless.

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byrneseyeview
That's true, but that's irrelevant. Is an investor really going to be snooty
enough to turn Microsoft down, if the most valuable thing that can happen to
Facebook is a sale to MS?

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Goladus
I'm not saying that MS might buy all of Facebook.

Some of the fine print in the 240 million dollar deal might be all they were
ever looking for to begin with.

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wschroter
Why aren't people looking at this deal and saying "$240m is the price to
secure their ad revenue deal?" If they paid the same amount and didn't get the
equity, would FB still we worth $15b?

Paying $240m to secure their ad relationship may have been a good deal in and
of itself.

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neilc
Well, I think the point is that Microsoft gave Facebook $240 million in
exchange for a few things. A "strategic alliance", 1.6% equity stake, an
advertising deal for Facebook ads outside the US, etc. Now, it's not correct
to just multiply those numbers to arrive at Facebook's book value, but the
deal certainly values Facebook very highly: as a company that Microsoft is
willing to essentially _give_ $240 million to at a very generous valuation. So
while Facebook aren't a $15 billion company, they're a company that can raise
$240 million in exchange for a small equity slice and an ad deal -- which is a
very highly-valued (overvalued?) company indeed.

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DocSavage
I agree with the blogger's reasoning, only now there's a rumor of a $500
million investment from two NYC hedge funds
(<http://news.ycombinator.com/item?id=72562>). The hedge funds would be making
a financial, not strategic, investment so the straight-line extrapolation
approach would be supported.

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Readmore
The point is this post is nonsense. Facebook's current valuation IS $15
Billion. Because of Microsoft's stupid investment we now have to live in a
world where Facebook has a $15 Billion valuation. Thanks M$!

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aaroniba
Does this mean new engineers who join facebook will get stock options with a
strike price reflecting the $15B valuation? Won't that make it harder to
recruit people?

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far33d
Yes. Which is why this deal might end up being much worse for the facebookers
than they might think it is right now.

They've basically created a 2-tier employee system.

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nkohari
If they can legally do it, I'm sure they'll re-issue options to avoid that
very problem. Not sure what the restrictions are for private companies.

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nkohari
On second thought, it might not be that simple... :)

