5 ms·

Basically it appears like Facebook made the rational calculation that hiring the developer at retail is a lot cheaper than buying the company wholesale. That i

Basically it appears like Facebook made the rational calculation that hiring the developer at retail is a lot cheaper than buying the company wholesale. That is consistent with what I have argued in HN comments: with the glut of start-ups (50 from YC alone this year?) prices will drop towards replacement value. The replacement value of a start-up amounts to a hiring bonus for its developers. This is likely true even with substantial user traction. We saw much the same thing in the implied valuation of iLike - after liquidation preference, developers basically get a hiring bonus, if they stick around. And iLike had 10 million monthly users on Facebook. So unless a start-up has a plausible path to independent profitability, it is going to be subject to the brutal laws of a buyer's market. In other sectors this effect has been well observed: take enterprise software for example. There are public companies with $100+ million revenue that trade for basically not much more than cash on hand.

byrneseyeview 17y ago
Yeah, if the startup's sole value is that it looks good on a résumé, that's true. But many startups have added brand value -- if Microsoft wanted to get into micropayments, for example, I think Microsoft TipJoy would have more initial traction than Microsoft Micropayment using the same developer. FB already has a great brand name.
- randallsquared 17y ago
  In this particular case, Ivan's already mentioned that the brand was a net drawback, in the previous thread about TipJoy this week.
- startingup 17y ago
  In my mind, brand value equates to user traction. User traction alone isn't enough for valuation (particularly in sober times), particularly when the acquirers have massive user-bases themselves. Microsoft's historical acquisitions were of that kind (starting with DOS!): technology/development teams, with little or no premium paid. As an acquirer this is perfectly rational behavior. Why make a VC rich? That is the logic that is increasingly being applied and the proliferation of start-ups makes that logic very compelling. Let's say FB next needs a real time video service. Do they really need someone else's brand or audience? They would likely scout for a hot development team with good technology, and there are many to choose from.
pg 17y ago
Note to the reader: don't believe every plausible-sounding explanation of events you read on a comment thread.
- trapper 17y ago
  I'd like to know why you think this isn't close to reality. There are tons of startups out there with no path to independent viability. Why wouldn't potential acquirers simply wait until the founders run out of what little money they have on hand then snap it up for a pittance? Or simply hire the developer? If someone can get something to market in three months the first try, it's going to be much quicker on the second try, especially if they don't have to deal with all that "other" stuff (marketing, business dev, launch plans etc).
  - pg 17y ago
    I'd like to know why you think this isn't close to reality. Because I was there in person when reality took place.
    - startingup 17y ago
      These are what outsiders know: a) Facebook and many acquirers looked at the company and passed b) Company ran out of money c) Facebook hired the developer, who also posts in the blog that his idea would work far better as part of Facebook or Twitter. I am not asserting that (a) and (c) are directly connected. It is perfectly possible that the people who looked at the acquisitions aren't the same ones who made the hire and the two sets of people may not even have talked to each other. However the one thing no one outside Facebook can really know is why they passed on the acquisition. My reasonable guess is that they figured it would be cheaper to hire (some, not necessarily the same) developers and do it themselves. Are you asserting that it is outside the realm of possibility for them to have thought that way? Or that future acquirers, facing similar choices, would not calculate that it would be cheaper to hire developers after they run out of money?
      - ghshephard 17y ago

byrneseyeview 17y ago

Yeah, if the startup's sole value is that it looks good on a résumé, that's true. But many startups have added brand value -- if Microsoft wanted to get into micropayments, for example, I think Microsoft TipJoy would have more initial traction than Microsoft Micropayment using the same developer. FB already has a great brand name.

randallsquared 17y ago
In this particular case, Ivan's already mentioned that the brand was a net drawback, in the previous thread about TipJoy this week.
startingup 17y ago
In my mind, brand value equates to user traction. User traction alone isn't enough for valuation (particularly in sober times), particularly when the acquirers have massive user-bases themselves. Microsoft's historical acquisitions were of that kind (starting with DOS!): technology/development teams, with little or no premium paid. As an acquirer this is perfectly rational behavior. Why make a VC rich? That is the logic that is increasingly being applied and the proliferation of start-ups makes that logic very compelling. Let's say FB next needs a real time video service. Do they really need someone else's brand or audience? They would likely scout for a hot development team with good technology, and there are many to choose from.

pg 17y ago

Note to the reader: don't believe every plausible-sounding explanation of events you read on a comment thread.

trapper 17y ago
I'd like to know why you think this isn't close to reality. There are tons of startups out there with no path to independent viability. Why wouldn't potential acquirers simply wait until the founders run out of what little money they have on hand then snap it up for a pittance? Or simply hire the developer? If someone can get something to market in three months the first try, it's going to be much quicker on the second try, especially if they don't have to deal with all that "other" stuff (marketing, business dev, launch plans etc).
- pg 17y ago
  I'd like to know why you think this isn't close to reality. Because I was there in person when reality took place.
  - startingup 17y ago
    These are what outsiders know: a) Facebook and many acquirers looked at the company and passed b) Company ran out of money c) Facebook hired the developer, who also posts in the blog that his idea would work far better as part of Facebook or Twitter. I am not asserting that (a) and (c) are directly connected. It is perfectly possible that the people who looked at the acquisitions aren't the same ones who made the hire and the two sets of people may not even have talked to each other. However the one thing no one outside Facebook can really know is why they passed on the acquisition. My reasonable guess is that they figured it would be cheaper to hire (some, not necessarily the same) developers and do it themselves. Are you asserting that it is outside the realm of possibility for them to have thought that way? Or that future acquirers, facing similar choices, would not calculate that it would be cheaper to hire developers after they run out of money?
    - ghshephard 17y ago