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The title is a bit aggressive. It's likely that Facebook it couldn't sell stock at last fall's $15 billion valuation. Rather than do a "down round" of financi
by RyanGWU82 18y ago
The title is a bit aggressive. It's likely that Facebook it couldn't sell stock at last fall's $15 billion valuation. Rather than do a "down round" of financing -- a round with a lower valuation -- they likely found it easier or cheaper to use debt.
- KirinDave 18y agoRight. Debt financing is a much more common strategy for start-ups now. Sometimes the difference between a huge round of funding and a lesser one is just timing, and debt financing is a good way to give a buffer to time things perfectly. In Facebook's case, who knows. It does suck to burn equity to buy servers. If Facebook is going to persist and continue to grow, paying off this loan shouldn't be difficult for them.
- slapshot 18y agoDebt financing isn't just about avoiding a "down round." It's also about maximizing the upside value for current stockholders. There is some maximum possible business value of Facebook, no matter how much capital they take in. The founders hope to reach that value. If they issue more stock, even if they take in the same valuation for that stock, that final maximum value is being divided among more shares. Each shareholder's upside is limited as a result. The lesson: -- equity is dilutive for growth companies, even if it's priced appropriately --
- nostrademons 18y agoDebt also makes a lot of sense for variable costs like servers, where you know roughly how much revenue you'll get per additional dollar investment. Akamai financed most of their infrastructure with debt, which was a huge drag on the stock price in 2002-2004 when people thought they were going to go out of business, but since has paid off very nicely for stockholders.