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Oh, To Be A Fly On The Wall In A Facebook Board Meeting

By - March 29, 2006

Facebook

Om says: when offered $750 million for your company, well… Erhmmm. TAKE IT. Bizweek is reporting that the company turned that figure down and is looking for something more like $2 billion.

Is this going to be another Friendster tale of woe?

Well, perhaps. As I learned when similar sized offers came to the Standard’s board table, selling the company is not always the entrepreneurs’ decision. The investors usually have final word, though I have no idea if that is true or not in the case of Facebook. And the company does have a remarkable business, in terms of its nearly complete reach into one of the most sought after markets in America – college kids. I can certainly see why Facebook board members might pound the table and say “We’re worth more, dammit!”

But, twenty years from now, I’m not sure anyone in the deal would argue that taking $750 million was such a bad move. Especially when the money in was about $13 million, and the damn worm of cool turns so fast in this business.

On the other hand, there is the Google problem. What’s that, you might ask? Google going after Facebook with an Orkut-powered killer app? No. Not at all. The problem is that Sergey and Larry held out and refused a lowball offer from Excite (and others) early in Google’s life, and they never looked back. Every set of young founders wants to do what they did – catch lightening in a bottle, change the world, make billions of dollars. Good luck, guys. I really do wish you well.

Me? I’d take the $750 million. But then, you all probably figured that one out by now!


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10 thoughts on “Oh, To Be A Fly On The Wall In A Facebook Board Meeting

  1. SorenG says:

    Whether they take it or not, it makes the $580 million for MySpace quite suspicious.

    My understanding is that FB got $500k early on from a private investor, then $13 million that was very competitive and much sought after from many VC’s, so I am guessing the founders still control a good part of the company.

    However, I do not think many people understand the users of MySpace or FB. They may be young and have money, but they are a unique group, and how much advertising they will respond to (or put up with) is unknown. They also want to be hip, so will bolt one site for another quite quickly. It is not an audience that is like Oprah’s, and who have an interest in and committment to a personality.

    I would not have taken the $, not because it is worth more (I think it is) but because new owners would likely change the site in ways I am not sure they are ready for.

  2. Jeff Clavier says:

    The counter example is of course Skype, which is rumored to have turned down multiple offers before selling for $4.1B to eBay.

    At $750M, Accel would make 7/8 times their investment in less than a year (i.e still in short term capital gains territory). I would not be surprised if they were trying to get at least a 10-bagger out of that one (10-bagger = 10 times your cash invested).

  3. SorenG says:

    Jeff, do you know what Accel’s 13 million got them or what the valuation of FB was at the time of their investment? I would be curious to know just how big a profit they are set to make. $750 million ain’t bad for a start up with only 13-14 million investmented in it — unless FB has other income sources.

  4. response to SorenG: “They also want to be hip, so will bolt one site for another quite quickly”

    I think MySpace will stay “cool,” mainly because it takes users time to build up presence and personality on their profile page (adding pictures, blogging, getting comments from friends).

    This content is hard to leave behind.

    Hip early adopters simply raise their shutters to keep the “unwashed” out. I know of many adult women (24-32) who put their age as “14” which means that no one can contact them without knowing their email address first.

    MySpace will keep its usage, if not its cool factor, because of the lack of friend network portability and the ability to be highly selective about who joins your network.

    Because you can’t take your friends with you from one social network to another – or the content you develop over time – I think we’ll see MySpace dominate for some time, especially with that wiley Rupert Murdoch behind the scenes.

    FaceBook too has a powerful glue – college friend networks. I really have no idea about valuation, but I’m sure that FaceBook usage will continue far beyond graduation.

  5. Lee Hower says:

    Re: Facebook valuation, it’s a fairly open “secret” (i.e. NYT has written about this) that the post-money was near $100M. Hence the 7-8x cash on cash return for a $750M offer that Jeff Clavier noted. I’ve heard various folks say the actual pre-money as low as $70M and as high as $87M.

    So presumably Accel, as the majority owner of the Series A shares, has veto rights over any acquisition. But either way the majority of the ownership still remains with the founders and seed stage investors.

  6. Barry Peterstein says:

    It just seems that fortunes are created fast on the net and destroyed equally fast.
    I can see a point where college kids no longer think friendster is cool. Just as they created a hugely profitable company quickly it could evaporate just as quick.
    If they have not created any great techonology it just to Barry Peterstein they should take the 750 mil and run.

  7. CorpDevDude says:

    There’s another factor at play besides maximizing shareholder return.

    Ego. Does Zuckerberg want to be Chris DeWolfe (founder who sold) or does he want to be Jeff Bezos (founder who controls)? If you haven’t noticed, Rupert (who probably doesn’t even have a myspace profile) is getting ALL THE CREDIT for myspace’s current success. If you were in your 20’s, were extremely confident in your abilities and believed that you would in almost all cases be set for life financially, wouldn’t you roll the dice? You don’t get to be a tech icon by selling.

  8. Jason says:

    I’ve had three phone calls with entrepreneurs who’ve been offered 5-30M for their startups in the past month. My advice to all of them: sell now, Internet winter is coming…. I hope these guys don’t become the Pointcast of Bubble 2.0.

  9. Tony says:

    only 750 million hahah

  10. emlak ilan says:

    I do not think many people understand the users of MySpace or FB..