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Decision Time For Facebook: Term Sheets Received At $2 Billion Valuation

43 points by vaksel 18y ago

thaumaturgy 18y ago
Call me old-fashioned, but it's hard for me to understand how something like Facebook is worth any $billion amount. That's a lot of money for an intangible product. (I'm equally stumped by Google's wealth too, though.)
- run4yourlives 18y ago
  At least google is in the black though.
  - Slzr 18y ago
    I dont understand why Yahoo and Facebook dont sell ads as much as Google Its that or a fee for the service which its very unlikely to work out since their competition its free.
- tokenadult 18y ago
  Google solved the problem of "find me the best webpage" in a clearly better way than earlier tools. Facebook solves the problem "find me a friend to chit-chat with" no better than any listserv I am on, and notably worse than my cell phone. So I think Facebook is in more long-term danger of running out of runway. Google reduces annoyance for searchers as it spiders more websites, while Facebook increases annoyance for subscribers as friends add other friends.
  - potatolicious 18y ago
    I have my doubts about Facebook's business potential, but I don't think it's fair to compare them to listservs or cell phones. For one thing, Facebook is clearly not a chat platform, nor is it a venue for in-depth discussion (try doing it sometime, the limitations become apparent). It's a way for you to keep tabs on friends in a passive way without engagement - which is something that I think will only increase in the coming years, for better or for worse. Where you only had time for a close circle of friends before, and knew essentially nothing about your many brief acquaintances, now you can keep a much better track of your social network without nearly as much effort. Your old coworker John? He's at Google now, and you didn't even need to email him to find out - in fact, you didn't have to ask anyone at all. It allows what used to be your "peripheral" social network to play a larger role in your life than it used to. Think of it as a tool to improve your general social "situational awareness". [edit] Another strength of Facebook is that you don't have to participate to derive value. I don't post status updates to Facebook very much, but I enjoy keeping up with friends who do. They're in a unique situation where a small group of hardcore users can keep perhaps an order of magnitude more casual users coming back for more.
    - tokenadult 18y ago
      a way for you to keep tabs on friends in a passive way without engagement That does sound like an apt way to sum up what Facebook promises. I'm not sure a) that's worth much money to me, even if the money is extracted from me by responding to advertisements once in a while, and b) whether another company couldn't provide that functionality less expensively and less annoyingly and thus have a way to beat Facebook in the marketplace.
- fizx 18y ago
  It's a big world. $1/user/mo * 800 million users is a lot of money.
  - tokenadult 18y ago
    But other social networks have actually lost users over time, even though supposedly a network becomes more sticky as more of your friends join it. I'm finding Facebook more off-putting, not more useful, as Facebook keeps trying to invent ways to draw me into the site. I spend way more time on HN than I spend on Facebook, because I find smarter discussion on HN.
    - frossie 18y ago
      I think of this as the acquaintance paradox. Social networking sites are best at keeping you in touch with your acquaintances (after all, your close friends already know where to find you and what you are doing). But someone who I am already acquainted with and who is not a close friend is merely an acquaintance for a reason - I don't click with them, I don't have time for them, whatever. The paradox is that I am therefore more likely to find a stranger interesting than an acquaintance, especially a self-selected group of strangers. I think that is why you prefer HN to your facebook buddies.
  - potatolicious 18y ago
    We've heard this argument before - but as history shows, extracting this $1/user (in profit!) per month is harder than it seems, especially when the nature of your product is not monetizable easily. How many businesses have failed that staked their entire existence on "we'll get tons of users... and show ads!"?
    - bmelton 18y ago
      Say we can get 10 cents per user per month? 800,000,000 * .1 = 80,000,000 For most smaller scale websites, they are valued at 12-18 months of revenue, meaning Facebook's resale value at about 1,440,000,000. 2 billion isn't that far off the mark given the user base really.
- mattmaroon 18y ago
  Google's valuation is pretty simple, they make a lot of money. Their service is no murkier than a consultant, or an interior decorator, or anyone who scratches an itch without manufacturing or retailing. Facebook is worth a large amount because of their scale. If they find a way to monetize it well, they too will make lots of money. That's a big "if" at the moment though, which is why they aren't worth what Google is, despite the fact that on a pageview basis they may one day be an order of magnitude larger.
  - netcan 18y ago
    I agree. They are definitely not worth nothing. Based on the scraps of rumors flying around, I suspect tat if they put their heads down for a year & tried to push down costs & revenues up they'd get somewhere. The company probably could be a profitable one. The question is how big it will be. Again from rumors, they now take in the 1/4b - $1/2b per year. Lets give them the benefit of a doubt & assume they can get to the bigger number and hold costs down so that the have make 10% profits. Let's also assume they're a growing company. No reason they shouldn't b. Revenues would probably continue to grow as (a) Advertisers will learn how to use Facebook properly. It will become more valuable to them & competition will drive the price up. Remember that early on most Adwords ads were snake oil salesmen paying 10c per click (b) Facebok improve the advertising platform. What is a company like that worth? I think less than $15bn. Maybe less than 4. At least everyone will stop talking about how much runway they have. I don't now nothin' about anti-dilution provisions or expectations investors have for all that capital. But I look at it this way: There is a viable business in there somewhere. maybe not one worth $15bn. But probably one worth more than $375m (the amount of investment they have taken). So I know. I know. I'm not accounting for risk. Previous valuation. I'm not accounting for the founders & early stage investors getting very rich. But where is the rule that the founder of a $2bn company gets to keep half or a quarter of that? If it takes some founders, $375, some risk & some luck to make a $2bn company, it should get built.
- lsb 18y ago
  Google and Facebook do many things, but what they sell is advertising space on very popular webpages. They charge you for click-throughs to your website. People want click-throughs, and they pay.
- whatusername 18y ago
  Google makes a pretty good profit (and 22B in Revenue last year) -- so it should be worth something As for facebook - I think there's value. Lets compare it to an Australian TV Station. We've got 3 commercial stations - who have a max viewer base of 21 million viewers. Facebook has 7 or 8 times that many users, which are much much more targeted/segmented (which should be valuable for advertisers) and is still growing. I'd also hazard a guess that there are a number of young/disposable income types who spend a lot more time on facebook than they do watching TV. They've created value for their users - and probably for their advertisers, but I don't think the advertisers see that yet.
  - spaghetti 18y ago
    Advertisers on fb see poor results. People on a social network are there to socialize... not buy things. Imagine a vendor trying to sell things in a social atmosphere at, say, a bar. For arguments sake assume the vendor is selling something very relevant like taxi service or beer mugs. Image how annoying and out-of-place the vendor would be in that atmosphere. And this assumes a relevant product (good ad-targeting in the social networking case). The point is advertising online works but not everywhere. Contrast the bar example with an "ad-sense" example i.e. a person selling soda at a flea market. People are there to buy things and the vendor will probably be successful.
    - whatusername 18y ago
      oh I agree completely. (And that explains why google is valuable - intention definitely counts.) My contrast was to TV - when I'm watching TV I'm there to watch a show - (superbowl maybe an exception) - and the ads are an interruption. I can't see how that is much better than advertising on FB - aside from the fact it's been around longer. FB also knows more about me (at least it should - I'm always amused getting ads for dating sites when my profile is kinda clear that I'm married). To go to your bar example - that depends on how it's done. I've bought beer mugs from a bar/brewery before - I saw the sign that they were for sale. I then had to take an action (click the link) and go to the counter and buy them. Or in terms of taxis - the rank could be there as you go in/out of the bar - perhaps even signs / posters / bar mats / coasters / etc. At the end of the night when I need a cab - then I can act on the info I've been looking at. Now if the cab driver came up to me while talking to my friends and tried to get me into his cab - that's a different story. But branding and well targeted service offerings - that's definitely valuable. And facebook should know that I want to go to the next Living End show in Melbourne, and I want to buy the next Wheel of Time book, and I'm likely to want to go see the next Harry Potter movie. The TV station doesn't know that - and so might show me useless ads for VB or the new Zac Efron movie...
Slzr 18y ago
They are worth whatever ads they can sell, I dont think they would be this successful if they charge a subscription fee. Anyway 20m a month for running the site its a lot of money, maybe they have a permanent party somewhere.
tewks 18y ago
Six years on, they really haven't monetized the site. Its advertising system is seriously ineffective and they've dropped the ball in corporate-consumer interaction to Twitter. Beacon was a disaster. People like Marc Andreesen claim that they could be profitable in a second. If this is true, why would the company be trying to raise more VC and dilute everyone's holdings? http://www.techcrunch.com/wp-content/uploads/2009/04/twitter-march.png http://www.techcrunch.com/wp-content/uploads/2009/04/twitter... There is definitely value that's being squandered as time goes on. Putting the lipstick on the pig and dumping it before time runs out might not be such a bad idea as they seem to think. Yahoo was willing to pay at least 1.5-1.6 billion two years ago. If they are really burning through $20 million/month, they've not gained very much by waiting.
- knightinblue 18y ago
  Ever see the movie 'August'? The best line - We're running on fumes
- gojomo 18y ago
  Yahoo was willing to pay at least 1.5-1.6 billion two years ago. If they are really burning through $20 million/month, they've not gained very much by waiting. Compared to almost any other investment over the past two years, a gain of 25-30% is a lot.
  - potatolicious 18y ago
    Your valuation is only worth something if you can cash out to that amount. Just because somebody says you're worth $2B, doesn't mean you can necessarily arrange a clean exit in that ballpark.
    - webwright 18y ago
      I think it's pretty clear that they are aiming for IPO, not acquisition.
  - jonknee 18y ago
    But they have taken in more capital in the two years which means they would have been better off selling. They have taken $475m in VC since then, vastly diluting their internal holdings. They have taken all this cash and are no more valuable but many of the share holders are invested at a higher valuation which means they are unwilling to sell.
dsil 18y ago
I like Microsoft-is-big-and-dumb stories: "As an interesting side note, Providence was heavily involved in the $15 billion round, and submitted a term sheet in the $10 billion range or higher at that time. The big rumor is that Facebook convinced Microsoft that the competition was Google, not a private equity firm, and it helped close the deal at a much higher rate."
JabavuAdams 18y ago
Take it! Have these guys actually started to believe their own crack? For the record, I don't see any way that Facebook is worth even $1B. Feel free to mock me in 10 years.
bdr 18y ago
For the "Facebook is worth zero"/"lol no business model" crowd, I'd like your answer to these two questions: 1. At what valuation would you invest in Facebook? 2. Why is your number so different from that of people who have a lot more information than you? Are you that much smarter?
- patio11 18y ago
  Why is your number so different from that of people who have a lot more information than you? People who are a lot smarter and had much better information than me thought that loaning $300,000 to a minimum wage immigrant (one anecdote among hundreds of thousands) was a highly profitable business, too. For eight of the last ten years they were looking pretty prescient now weren't they.
  - modoc 18y ago
    No need to bring immigration status into it. Frankly loaning huge sums of money to people with poor credit ratings and not enough income to pay it off with if they wanted to was a horrible idea, and yet tons of "smart" people made it their primary business. And yes, some of them actually got very rich from doing it. Doesn't mean I want to do business like that.
  - antiismist 18y ago
    Actually it was completely reasonable to have made those loans and I'd have done it too given that Fannie Mae was willing to guarantee it. If that's all that you did then you'd be fine (everyone else is of course another story but business is business).
    - chadmalik 18y ago
      There were in fact some people who worked at banks who refused to participate in the fraudulent lending activity, falsification of income statements, no-doc loans etc. - they quit or were fired. It may be "reasonable" to engage in fraud when the government is enabling it - but its not honest. Hopefully our country can come to a point in the future where being honest is viewed as the "reasonable" thing to do.
volida 18y ago
I've been saying this for the "evaluation" for quite a long time now. Microsoft will probably end up buying them for "free" in 2-3 years.
spaghetti 18y ago
I wouldn't invest simply because FB doesn't provide any service that's of value to me. Google does, Microsoft does, Craigslist does, Amazon does, my local dry cleaner does. FB does not.

43 points by vaksel 18y ago

Call me old-fashioned, but it's hard for me to understand how something like Facebook is worth any $billion amount. That's a lot of money for an intangible product. (I'm equally stumped by Google's wealth too, though.)

run4yourlives 18y ago
At least google is in the black though.
- Slzr 18y ago
  I dont understand why Yahoo and Facebook dont sell ads as much as Google Its that or a fee for the service which its very unlikely to work out since their competition its free.
tokenadult 18y ago
Google solved the problem of "find me the best webpage" in a clearly better way than earlier tools. Facebook solves the problem "find me a friend to chit-chat with" no better than any listserv I am on, and notably worse than my cell phone. So I think Facebook is in more long-term danger of running out of runway. Google reduces annoyance for searchers as it spiders more websites, while Facebook increases annoyance for subscribers as friends add other friends.
- potatolicious 18y ago
  I have my doubts about Facebook's business potential, but I don't think it's fair to compare them to listservs or cell phones. For one thing, Facebook is clearly not a chat platform, nor is it a venue for in-depth discussion (try doing it sometime, the limitations become apparent). It's a way for you to keep tabs on friends in a passive way without engagement - which is something that I think will only increase in the coming years, for better or for worse. Where you only had time for a close circle of friends before, and knew essentially nothing about your many brief acquaintances, now you can keep a much better track of your social network without nearly as much effort. Your old coworker John? He's at Google now, and you didn't even need to email him to find out - in fact, you didn't have to ask anyone at all. It allows what used to be your "peripheral" social network to play a larger role in your life than it used to. Think of it as a tool to improve your general social "situational awareness". [edit] Another strength of Facebook is that you don't have to participate to derive value. I don't post status updates to Facebook very much, but I enjoy keeping up with friends who do. They're in a unique situation where a small group of hardcore users can keep perhaps an order of magnitude more casual users coming back for more.
  - tokenadult 18y ago
    a way for you to keep tabs on friends in a passive way without engagement That does sound like an apt way to sum up what Facebook promises. I'm not sure a) that's worth much money to me, even if the money is extracted from me by responding to advertisements once in a while, and b) whether another company couldn't provide that functionality less expensively and less annoyingly and thus have a way to beat Facebook in the marketplace.
fizx 18y ago
It's a big world. $1/user/mo * 800 million users is a lot of money.
- tokenadult 18y ago
  But other social networks have actually lost users over time, even though supposedly a network becomes more sticky as more of your friends join it. I'm finding Facebook more off-putting, not more useful, as Facebook keeps trying to invent ways to draw me into the site. I spend way more time on HN than I spend on Facebook, because I find smarter discussion on HN.
  - frossie 18y ago
    I think of this as the acquaintance paradox. Social networking sites are best at keeping you in touch with your acquaintances (after all, your close friends already know where to find you and what you are doing). But someone who I am already acquainted with and who is not a close friend is merely an acquaintance for a reason - I don't click with them, I don't have time for them, whatever. The paradox is that I am therefore more likely to find a stranger interesting than an acquaintance, especially a self-selected group of strangers. I think that is why you prefer HN to your facebook buddies.
- potatolicious 18y ago
  We've heard this argument before - but as history shows, extracting this $1/user (in profit!) per month is harder than it seems, especially when the nature of your product is not monetizable easily. How many businesses have failed that staked their entire existence on "we'll get tons of users... and show ads!"?
  - bmelton 18y ago
    Say we can get 10 cents per user per month? 800,000,000 * .1 = 80,000,000 For most smaller scale websites, they are valued at 12-18 months of revenue, meaning Facebook's resale value at about 1,440,000,000. 2 billion isn't that far off the mark given the user base really.
mattmaroon 18y ago
Google's valuation is pretty simple, they make a lot of money. Their service is no murkier than a consultant, or an interior decorator, or anyone who scratches an itch without manufacturing or retailing. Facebook is worth a large amount because of their scale. If they find a way to monetize it well, they too will make lots of money. That's a big "if" at the moment though, which is why they aren't worth what Google is, despite the fact that on a pageview basis they may one day be an order of magnitude larger.
- netcan 18y ago
  I agree. They are definitely not worth nothing. Based on the scraps of rumors flying around, I suspect tat if they put their heads down for a year & tried to push down costs & revenues up they'd get somewhere. The company probably could be a profitable one. The question is how big it will be. Again from rumors, they now take in the 1/4b - $1/2b per year. Lets give them the benefit of a doubt & assume they can get to the bigger number and hold costs down so that the have make 10% profits. Let's also assume they're a growing company. No reason they shouldn't b. Revenues would probably continue to grow as (a) Advertisers will learn how to use Facebook properly. It will become more valuable to them & competition will drive the price up. Remember that early on most Adwords ads were snake oil salesmen paying 10c per click (b) Facebok improve the advertising platform. What is a company like that worth? I think less than $15bn. Maybe less than 4. At least everyone will stop talking about how much runway they have. I don't now nothin' about anti-dilution provisions or expectations investors have for all that capital. But I look at it this way: There is a viable business in there somewhere. maybe not one worth $15bn. But probably one worth more than $375m (the amount of investment they have taken). So I know. I know. I'm not accounting for risk. Previous valuation. I'm not accounting for the founders & early stage investors getting very rich. But where is the rule that the founder of a $2bn company gets to keep half or a quarter of that? If it takes some founders, $375, some risk & some luck to make a $2bn company, it should get built.
lsb 18y ago
Google and Facebook do many things, but what they sell is advertising space on very popular webpages. They charge you for click-throughs to your website. People want click-throughs, and they pay.
whatusername 18y ago
Google makes a pretty good profit (and 22B in Revenue last year) -- so it should be worth something As for facebook - I think there's value. Lets compare it to an Australian TV Station. We've got 3 commercial stations - who have a max viewer base of 21 million viewers. Facebook has 7 or 8 times that many users, which are much much more targeted/segmented (which should be valuable for advertisers) and is still growing. I'd also hazard a guess that there are a number of young/disposable income types who spend a lot more time on facebook than they do watching TV. They've created value for their users - and probably for their advertisers, but I don't think the advertisers see that yet.
- spaghetti 18y ago
  Advertisers on fb see poor results. People on a social network are there to socialize... not buy things. Imagine a vendor trying to sell things in a social atmosphere at, say, a bar. For arguments sake assume the vendor is selling something very relevant like taxi service or beer mugs. Image how annoying and out-of-place the vendor would be in that atmosphere. And this assumes a relevant product (good ad-targeting in the social networking case). The point is advertising online works but not everywhere. Contrast the bar example with an "ad-sense" example i.e. a person selling soda at a flea market. People are there to buy things and the vendor will probably be successful.
  - whatusername 18y ago
    oh I agree completely. (And that explains why google is valuable - intention definitely counts.) My contrast was to TV - when I'm watching TV I'm there to watch a show - (superbowl maybe an exception) - and the ads are an interruption. I can't see how that is much better than advertising on FB - aside from the fact it's been around longer. FB also knows more about me (at least it should - I'm always amused getting ads for dating sites when my profile is kinda clear that I'm married). To go to your bar example - that depends on how it's done. I've bought beer mugs from a bar/brewery before - I saw the sign that they were for sale. I then had to take an action (click the link) and go to the counter and buy them. Or in terms of taxis - the rank could be there as you go in/out of the bar - perhaps even signs / posters / bar mats / coasters / etc. At the end of the night when I need a cab - then I can act on the info I've been looking at. Now if the cab driver came up to me while talking to my friends and tried to get me into his cab - that's a different story. But branding and well targeted service offerings - that's definitely valuable. And facebook should know that I want to go to the next Living End show in Melbourne, and I want to buy the next Wheel of Time book, and I'm likely to want to go see the next Harry Potter movie. The TV station doesn't know that - and so might show me useless ads for VB or the new Zac Efron movie...

Slzr 18y ago

They are worth whatever ads they can sell, I dont think they would be this successful if they charge a subscription fee. Anyway 20m a month for running the site its a lot of money, maybe they have a permanent party somewhere.

tewks 18y ago

Six years on, they really haven't monetized the site. Its advertising system is seriously ineffective and they've dropped the ball in corporate-consumer interaction to Twitter. Beacon was a disaster. People like Marc Andreesen claim that they could be profitable in a second. If this is true, why would the company be trying to raise more VC and dilute everyone's holdings? http://www.techcrunch.com/wp-content/uploads/2009/04/twitter-march.png http://www.techcrunch.com/wp-content/uploads/2009/04/twitter... There is definitely value that's being squandered as time goes on. Putting the lipstick on the pig and dumping it before time runs out might not be such a bad idea as they seem to think. Yahoo was willing to pay at least 1.5-1.6 billion two years ago. If they are really burning through $20 million/month, they've not gained very much by waiting.

knightinblue 18y ago
Ever see the movie 'August'? The best line - We're running on fumes
gojomo 18y ago
Yahoo was willing to pay at least 1.5-1.6 billion two years ago. If they are really burning through $20 million/month, they've not gained very much by waiting. Compared to almost any other investment over the past two years, a gain of 25-30% is a lot.
- potatolicious 18y ago
  Your valuation is only worth something if you can cash out to that amount. Just because somebody says you're worth $2B, doesn't mean you can necessarily arrange a clean exit in that ballpark.
  - webwright 18y ago
    I think it's pretty clear that they are aiming for IPO, not acquisition.
- jonknee 18y ago
  But they have taken in more capital in the two years which means they would have been better off selling. They have taken $475m in VC since then, vastly diluting their internal holdings. They have taken all this cash and are no more valuable but many of the share holders are invested at a higher valuation which means they are unwilling to sell.

dsil 18y ago

I like Microsoft-is-big-and-dumb stories: "As an interesting side note, Providence was heavily involved in the $15 billion round, and submitted a term sheet in the $10 billion range or higher at that time. The big rumor is that Facebook convinced Microsoft that the competition was Google, not a private equity firm, and it helped close the deal at a much higher rate."

JabavuAdams 18y ago

Take it! Have these guys actually started to believe their own crack? For the record, I don't see any way that Facebook is worth even $1B. Feel free to mock me in 10 years.

bdr 18y ago

For the "Facebook is worth zero"/"lol no business model" crowd, I'd like your answer to these two questions: 1. At what valuation would you invest in Facebook? 2. Why is your number so different from that of people who have a lot more information than you? Are you that much smarter?

patio11 18y ago
Why is your number so different from that of people who have a lot more information than you? People who are a lot smarter and had much better information than me thought that loaning $300,000 to a minimum wage immigrant (one anecdote among hundreds of thousands) was a highly profitable business, too. For eight of the last ten years they were looking pretty prescient now weren't they.
- modoc 18y ago
  No need to bring immigration status into it. Frankly loaning huge sums of money to people with poor credit ratings and not enough income to pay it off with if they wanted to was a horrible idea, and yet tons of "smart" people made it their primary business. And yes, some of them actually got very rich from doing it. Doesn't mean I want to do business like that.
- antiismist 18y ago
  Actually it was completely reasonable to have made those loans and I'd have done it too given that Fannie Mae was willing to guarantee it. If that's all that you did then you'd be fine (everyone else is of course another story but business is business).
  - chadmalik 18y ago
    There were in fact some people who worked at banks who refused to participate in the fraudulent lending activity, falsification of income statements, no-doc loans etc. - they quit or were fired. It may be "reasonable" to engage in fraud when the government is enabling it - but its not honest. Hopefully our country can come to a point in the future where being honest is viewed as the "reasonable" thing to do.

volida 18y ago

I've been saying this for the "evaluation" for quite a long time now. Microsoft will probably end up buying them for "free" in 2-3 years.

spaghetti 18y ago

I wouldn't invest simply because FB doesn't provide any service that's of value to me. Google does, Microsoft does, Craigslist does, Amazon does, my local dry cleaner does. FB does not.