4 ms·

Facebook to let employees sell some stock — at internal $4 billion valuation

23 points by sanj 18y ago

netcan 18y ago
$4b is an awful lot. Especially since any potential business model is still to be really proven. The sort of targeted advertising they are aiming for is not necessarily easy to pull off. And I think it will take a couple of years to prove it either way. I wonder what this does to their runway?
- sanj 18y ago
  Why would it change their runway?
  - netcan 18y ago
    I assumed that the company was buying back the stock using the company piggy bank. But as mentioned below, maybe this is achieved by direct trading between employees or investors.
- joeter 18y ago
  $4b seems much too high to me as well. facebook has two main values that are only valuable due to high number of users. 1- source of contact - substitutes include: old aol, aim, email, ichat, ect 2- representation of self to world - substitutes include myspace, most social networks, ect asian markets have different preferences for representation of self than those facebook emphasizes. facebook is having troubling scaling globally AND they plan to monetize on only advertising. those employees made out nicely.
  - netcan 18y ago
    True, and neither of those are money-makers. The whole 'we'll make money off it with advertising later' has failed many times. Search is the exception not the rule. Until I actually saw some innovative advertising method making advertisers money and getting an excited response in that community, I'd be sceptical that they can do more with a pageview then NYT.com or About.com or any other 'site.' At banner ad monetisation rates, that would probably put them at around the $50m - $500m p/y mark.
icky 18y ago
> Facebook has said it’s not planning to IPO anytime soon Exactly how do they plan to let employees sell stock without accidentally becoming a public company? Is this stock being sold back to the company itself?
- superchink 18y ago
  Most likely, it involves private internal trading between employees. Those that would rather just take the cash and run can sell their stock to others who would like to invest more into the company.
  - helveticaman 18y ago
    It sounds like a great idea to me.
  - cypress-hill 18y ago
    Most likely, it involves private internal trading between employees doubtful. this is not a new practice. banks and investment houses have been buying options in private companies from potential shareholders for years
  - volida 18y ago
    you mean invest in thin air
  - hugh 18y ago
    Most likely, it involves private internal trading between employees Where would the money come from? Very few facebook employees are rich in cash.
- brianm 18y ago
  Probably to existing shareholders, or a select group of investors, via private deals.
- cypress-hill 18y ago
  Exactly how do they plan to let employees sell stock without accidentally becoming a public company? they sell it to banks and/or investment firms who are basically buying a futures contract on a facebook ipo. the employee loses their rights to sell these shares, the bank gains the rights.
netcan 18y ago
I'm not really literate in the technicalities but something doesn't add up. The preferred stock deal with MSFT values the company at $15b 'internal valuation' that the shares were issued at is $4b. Aren't these supposed to be approximations of the same thing, roughly? Does that means that they can't go public with a valuation lower then $15b? That MSFT deal seems insane. Facebook would have to be an advertising powerhouse.
- brianlash 18y ago
  As I understand it the valuation at the time of the Microsoft deal was meaningless, at least as far as other shareholders go. Their move was based on an effort to "get into social networking," not a strategic long-term investment. I could be wrong. But I think that's a believable story, especially in light of this news around FB's own (much lower) internal valuation.
  - netcan 18y ago
    Makes sense. I guess they pay an evil premium. But wouldn't they have something written into the deal that they can't sell the company at a valuation lower then the preferred stock price? Isn't that what preferred stock means. I suppose that there would be no restrictions on buying at a lower valuation.
prakash 18y ago
Apparently linkedin is doing it as well! http://venturebeat.com/2008/08/04/linkedin-like-facebook-is-letting-employees-sell-some-stock-early/ http://venturebeat.com/2008/08/04/linkedin-like-facebook-is-... This seems in between an IPO and an acquisition, it would be nice to see more startups taking this route.
- hugh 18y ago
  It seems like a dangerous route to take, to make some of your key employees rich before there's a proper liquidity event. I can only imagine what it will do to their motivation and to the internal politics of the company. Of course, very few startups find themselves in this position anyway, being worth billions but with no interest in selling at the moment.
  - prakash 18y ago
    That's one way to look at it, and I am sure some employees might leave after this. The other way to look at it is that it re-energizes the workforce and the early employees, makes them stick around longer, and gives some hope to the other employees that have joined later.
- netcan 18y ago
  Well it is a good idea (I guess) if you want to keep taking chances but don't want an IPO or acquisition. You can't expect employees to keep working for risky stock forever. They'd have (I assume) a good few employees with $1/2m - $1m or even $50 - $100k worth of stock. For many, it's probably more then everything else they own put together. You wouldn't want to put everything you own on one risky & speculative tech stock. They'd be pretty keen on an IPO. I guess letting them cash out a bit is a way of releasing some of that pressure so they can keep taking risk.

23 points by sanj 18y ago

$4b is an awful lot. Especially since any potential business model is still to be really proven. The sort of targeted advertising they are aiming for is not necessarily easy to pull off. And I think it will take a couple of years to prove it either way. I wonder what this does to their runway?

sanj 18y ago
Why would it change their runway?
- netcan 18y ago
  I assumed that the company was buying back the stock using the company piggy bank. But as mentioned below, maybe this is achieved by direct trading between employees or investors.
joeter 18y ago
$4b seems much too high to me as well. facebook has two main values that are only valuable due to high number of users. 1- source of contact - substitutes include: old aol, aim, email, ichat, ect 2- representation of self to world - substitutes include myspace, most social networks, ect asian markets have different preferences for representation of self than those facebook emphasizes. facebook is having troubling scaling globally AND they plan to monetize on only advertising. those employees made out nicely.
- netcan 18y ago
  True, and neither of those are money-makers. The whole 'we'll make money off it with advertising later' has failed many times. Search is the exception not the rule. Until I actually saw some innovative advertising method making advertisers money and getting an excited response in that community, I'd be sceptical that they can do more with a pageview then NYT.com or About.com or any other 'site.' At banner ad monetisation rates, that would probably put them at around the $50m - $500m p/y mark.

icky 18y ago

> Facebook has said it’s not planning to IPO anytime soon Exactly how do they plan to let employees sell stock without accidentally becoming a public company? Is this stock being sold back to the company itself?

superchink 18y ago
Most likely, it involves private internal trading between employees. Those that would rather just take the cash and run can sell their stock to others who would like to invest more into the company.
- helveticaman 18y ago
  It sounds like a great idea to me.
- cypress-hill 18y ago
  Most likely, it involves private internal trading between employees doubtful. this is not a new practice. banks and investment houses have been buying options in private companies from potential shareholders for years
- volida 18y ago
  you mean invest in thin air
- hugh 18y ago
  Most likely, it involves private internal trading between employees Where would the money come from? Very few facebook employees are rich in cash.
brianm 18y ago
Probably to existing shareholders, or a select group of investors, via private deals.
cypress-hill 18y ago
Exactly how do they plan to let employees sell stock without accidentally becoming a public company? they sell it to banks and/or investment firms who are basically buying a futures contract on a facebook ipo. the employee loses their rights to sell these shares, the bank gains the rights.

netcan 18y ago

I'm not really literate in the technicalities but something doesn't add up. The preferred stock deal with MSFT values the company at $15b 'internal valuation' that the shares were issued at is $4b. Aren't these supposed to be approximations of the same thing, roughly? Does that means that they can't go public with a valuation lower then $15b? That MSFT deal seems insane. Facebook would have to be an advertising powerhouse.

brianlash 18y ago
As I understand it the valuation at the time of the Microsoft deal was meaningless, at least as far as other shareholders go. Their move was based on an effort to "get into social networking," not a strategic long-term investment. I could be wrong. But I think that's a believable story, especially in light of this news around FB's own (much lower) internal valuation.
- netcan 18y ago
  Makes sense. I guess they pay an evil premium. But wouldn't they have something written into the deal that they can't sell the company at a valuation lower then the preferred stock price? Isn't that what preferred stock means. I suppose that there would be no restrictions on buying at a lower valuation.

prakash 18y ago

Apparently linkedin is doing it as well! http://venturebeat.com/2008/08/04/linkedin-like-facebook-is-letting-employees-sell-some-stock-early/ http://venturebeat.com/2008/08/04/linkedin-like-facebook-is-... This seems in between an IPO and an acquisition, it would be nice to see more startups taking this route.

hugh 18y ago
It seems like a dangerous route to take, to make some of your key employees rich before there's a proper liquidity event. I can only imagine what it will do to their motivation and to the internal politics of the company. Of course, very few startups find themselves in this position anyway, being worth billions but with no interest in selling at the moment.
- prakash 18y ago
  That's one way to look at it, and I am sure some employees might leave after this. The other way to look at it is that it re-energizes the workforce and the early employees, makes them stick around longer, and gives some hope to the other employees that have joined later.
netcan 18y ago
Well it is a good idea (I guess) if you want to keep taking chances but don't want an IPO or acquisition. You can't expect employees to keep working for risky stock forever. They'd have (I assume) a good few employees with $1/2m - $1m or even $50 - $100k worth of stock. For many, it's probably more then everything else they own put together. You wouldn't want to put everything you own on one risky & speculative tech stock. They'd be pretty keen on an IPO. I guess letting them cash out a bit is a way of releasing some of that pressure so they can keep taking risk.