Facebook is reportedly still in the process of talking to several private equity firms about a significant follow-up investment in the company. According to the New York Post, which tends to be a bit sensationalist at times and is owned by News Corporation, the social networking juggernaut has already held informal exploratory meetings with Providence Equity Partners, General Atlantic, Bain Capital, Kohlberg Kravis Roberts and others to date.
The article cites Facebook to be looking for fresh capital at a $5 to $6 billion valuation, with the potential investors only willing to pour more capital in the company in the $2 billion to $3 billion valuation range. This is almost exactly what we reported earlier when we learned that Facebook may have received a term sheet for an investment at a $2 billion valuation from General Atlantic. The New York Post, however, claims no term sheets have been drawn up to date.
The articles cites unnamed sources with knowledge of the situation, but that none of the companies involved will comment officially or so far failed to return requests for more information. As soon as day breaks in the U.S., we’ll do a bit of poking of our own.
From the mouths of ‘people familiar with the matter’, Facebook’s attempt to raise additional capital is supposedly causing some friction with its existing investors (which include Accel Partners, Greylock Partners, Meritech Capital Partners, Microsoft and Peter Thiel), who are said to be against diluting their shares and urging the company to start squeezing some real revenue out of its now more than 200 million registered users.
As Michael wrote earlier, Facebook may not have a lot of choice:
They’re burning as much as $20 million a month in cash and are dealing with ridiculous growth. They likely have less than two years runway left, and possibly significantly less if they continue to add new users by the tens of millions that are currently flocking there every month.
To be continued, no doubt.
These companies MUST BE CRAZY to invest in this company without demanding headcount reductions and a change in the CEO spot.
This company is growing at an amazing rate each day but has not figured out how to monetize so the costs are growing much much much faster than the revenue. And, to make matters worse, the ROI for advertisers is TERRIBLE, so they can only monetize with very low-priced CPM’s, which means that they need a new invention or they will die of their own weight. A huge problem.
To all investors: read this before investing.
agree, with recession VC will be less likely invest with valuation of $5-6 Billion.
headcount reduction maybe ok, what is your prob with ceo? we want innovators, not really revenue innovators.
headcount reduction is necessary because they are making too many unwanted changes to the website. That is what happens if there are too many jobless people in a company.
Well said. Must-read for people from the FB quarters. If monetizing does not seem to be happening, then what is the point in growth?
I don’t think you guys get it, shouldn’t the real question be, the fact that Facebook has reached a level that $5-6 Billion dollars is not crazy.
Didn’t MySpace sell for like $580 million. So the fact that Facebook is worth 5-6 billion is amazing.
It’s not about can they turn it into a money maker, of course they can, the point is they don’t really need to do it right now. They are exploding on Growth, the site is a monster..
Facebook is so big I would not be surprised, if it comes as an app on new computers..
It’s really getting that big, to the point where you will Google something, and then find your friends on Facebook. -(and those two things will be the first thing people do when they think about getting on the net) That’s insane that they are getting that big.
I’d love to join in the facebook hate–given the valuation is 1/4 of yahoo (and ebay).
However, the NYPOST is owned by Murdoch, so I’d take it with a grain of salt.
Why would you need it as an App on a new computer when you can just access it from the browser?
it was just a comment man… which i found actually quite well thougt.
What is the point of getting millions of poor, homeless, soon to be unemployed, or laid off college students to use their services and servers for free. I wrote in an earlier post that FB will be sold to Microsoft for a fraction and someone said I was wrong. Now who’s wrong idiots. Maybe he should have just kept it a closed Harvard network and just had the rich Harvard students pay to use it and buy mercedes and diamonds. Facebook is done, its not like they are even trying to generate revenue. Its a giant ponzi scheme, how about you give each of your FB friends one dollar and they give you one dollar back! Zuck should be sued for stealing investors money with no business plan, or at least get in line to sue him.
looks like you’re still the idiot
“It’s not about can they turn it into a money maker, of course they can, the point is they don’t really need to do it right now.”
HA! If they could do it, they would do it. To think anything else is just ignorant. Anyone who buys into the “growth first, monetize second” line is a fool. Companies feed that to the public to make themselves sound noble, but it really means they have no idea how to sell their core product and operate a business.
Also, the point of the article is that many think the $5-6 billion valuation is crazy, and no one wants to touch it, so you may want to read it again. In addition, I personally don’t believe anyone wants to touch the $2-3 billion valuation either. Bottom line, I think Facebook is in serious trouble and already has numerous investors breathing down their neck looking for some ROI. The only way out will be to charge users a monthly/yearly subscription fee. Yes, they will isolate many, but it will be necessary for them to survive. In order to retain their user base, they could offer a light version which limits the amount of UGC a user can upload with respect to both bandwidth and storage.
Why do you think it’s such a sure thing that they can make all this money? Have you personally ever clicked on any of their ridiculous ads? Has anyone?
You are what is wrong with this country. You believe something in your head even though there is no evidence to support it.
Last I knew they weren’t making $0 revenue. It’s just that their costs are exceeding their revenue. There’s a difference, isn’t there?
Well, they should just not allow any new users then if their server costs can’t handle any more people. Like on Plenty of Fish, Markus said that every new person increases his costs so its reached capacity. Think of fakebook as the planet earth and there is human over-population and there are not enough food or water to feed everyone.
Trust me, ballmer is laughing all the way and he is lurking to buy fakebook completely. He would jump at it next week even, quarter 1 numbers don’t look so good, layoffs on the last day of the month.
“It’s not about can they turn it into a money maker, of course they can”
OF COURSE THEY CANNOT, NEITHER CAN ANYONE INVOLVED FINANCIALLY INTO FB to come up with idea how to monetarize this giant.
Somebody said it already and somebody said it right, those VC have it all wrong. They think that all you need is a half-a-billion audience and there will always be a way to make money. Guess what – there is not!! So what FB is giving out adds that generate what 100 200 300 mil a year?? the need MORE than that just to run their business not to mention make any money on the top.
FB is like offering a free dinner in crowded neighborhood – everyone will join and think you are the best. then you have 500 million people coming for the dinner, so you say: ok now if I only get 1 dollar for each person, but guess what they GOT USED to getting dinner for free.. you start charging them a dollar, 80% will turn away, the rest wont be enough to payoff your electric, bandtwitch and IT bill. simple!!
“which tends to be a little sensationalist at times”?? lol It’s like a pig criticizing a dog for being dirty…
meh, what do you know? there’s so much absurd speculation from nobodies on techcrunch, just hilarious. where’s your multi-billion dollar business with 200 million members? oh, that’s right – you don’t have one.
sounds like a lot of people are simply jealous they’re not in on the action.
Yep, i’m looking for fresh capital also, Facebook won’t fix there video email thing. And they want more money to do what? Really to do what? A new home page design.
As an investor the first question I would ask is to look at the books, on first glance there will be a big fat loss under operating profits.
It seems to me that someone is trying to offload the site on the nearest pulse with a checkbook and pen.
(*They’re rumored to eat the money this time so it can be spent quicker)
Any serious investor would be smart to put in place conditions of change â CEO perhaps, but also a major organizational rationalisation. They have grown enormously, but in many ways they have not and could really do with an overhaul in the management space.
what’s sad is that Broadcast.com sold for what, $5.7 b? Oh web1.0…
Which one would you rather have? Facebook at or Broadcast.com at $5.5 billion?
Everyone’s assuming they will continue to grow at this pace and that the existing users will continue to use the site. I know a lot of college students who still use it, but the majority of my friends who have graduated college have dropped like flees.
Moreover, there comes a point where earning revenue really does matter. I believe in building market share, but this strategy of trying to sign up every human on Earth and then once that is done, then start focusing on revenue, that strategy is ridiculous.
Finally, any investor who puts a dime into that site is just a FOOL!
they need to charge members $1 a year that’s $200m in revenue and that will pay all the 800 staff and their bandwidth bills, why is this stuff forever free?
If they charge, other free providers like Orkut or MySpace will eat them for lunch.
Remember the email wars of late 90s? Anyone uses usa.net email anymore after they made it a paid service?
A more appropriate figure would be $1.99 per month (for US users) and create a group account or pod in developing countries that people can login to.
Not sure of pricing, but the group, let’s say of 10 people pays into this, say .50.mth. So, now you have $5/mth for 10 million people (assumption of 100 million people). So, we’re talking roughly $350M per month (Western and developed countries of 100M users and developing of 100M). FB has more accurate number, but you get the idea.
The problem with this, just as in S. Africa when people did not pay for utilities for years and when they actually had to pay, it was a freakin rebellion, because they got complacent and felt entitled to free electricity.
The point is, if you have a service that provides relevant value, charge. If it is for entertainment and you like to play around on the web, give it away and shut up.
See page 4 of Jyri Engeström’s presentation
http://www.slid...20-expo-sf-2009
Firefly, SixDegrees, Friendster, Myspace…
How soon we forget!
Facebook still has a long way to go in terms on Ads, they haven’t even scratched the surface this could really take off. Thanks for the interesting info.
KKR is perfect fit. They can help run Mark’s baby into the ground even faster. History of vastly over-paying for companies with importance of market share over profits and/or draining life from them. First Data no exception, Harmon almost. Know one will ever know true worth of FB. That is not the point, eyeballs and influence are.
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$20MM burn a month?…$5B – $6B valuation? what in the sam hell is going on here?! They’d have to realize a $20B – $60B sale down the road to appease their now-desperate VCs. I’m not sure what kind of weed they’re smoking, but there’s a chance they got it from the same dude who deals to the employees of the US Government who do our national economic math.
Oh wait, I forgot…Facebook is going to sell Ads…very custom, special ads, highly-targeted, social, and (oh yeah) welcomed ads. Problem solved.
Exactly. Facebook doesn’t seem to be in the sweet spot where VCs invest. Getting new investment at a $5B valuation means that VCs think that Facebook will have an exit in the range of $50B in the next few years.
Who thinks that Facebook will have an exit in that range? And how? IPO? Or a sale?
Perhaps that’s why Facebook has started looking at other sources of investments.
MS did quite a number on these guys.
I am an avid user of facebook but when I really think of the revenue model it really surprises me. Its like I open a shop – spend millions of dollars and have my shop full of people who are just looking at my merchandise.
Ad revenue is understood but burning 20 mill dollars a month, how viable it is probably only time will say it.
“According to the New York Post, which tends to be a bit sensationalist at times and is owned by News Corporation”
Oh yes, and you’re site is not sensationalist at all, and your past reporting is always accurate….
That is the most ridiculous thing I have heard in a long time. The company is not worth a $1B and zuckerburg thinks he can turn down an investment with a valuation of $4B. This company is crazy… it barely makes $300M in revenue and has no idea on where growth of revenue is going to come from.
It’s not like the NY Post business section has won awards for its reporting. Probably one of the more undervalued business sections.
And just the headlines are sensationalistic, not the actual business stories. But maybe you’re getting confused by Page Six?
They could still perform an IPO with shares valued at $30 – $40 each
cheers
shares at $30 -$40????…it doesn’t matter what the price of shares are, buddy…It matters how many are outstanding and then the price…please educate yourself just a little
FB isn’t worth anywhere near $5-6B, sorry. Its revenue model is crystal ball science, and its users aren’t really big spenders as a demographic group to begin with.
But the idea of having, may be 1b users in 5 years at one place is worth much more than $6b
Why? We have 7 billion people in one place–Earth. What is that worth?
I think its about $65.950.000.000.000
By the way, facebook is too huge and too important to go down.
I guess Obama should bail them out
true that
Too huge and too important. This is not a company that would fundamentally alter the financial fabric of the US and have an adverse impact on foreign markets. Please, any company can go down. Any company. I like Facebook, don’t use it much, but the fundamentals are not designed for this to be an ongoing concern that is built to last. It is ultimately of more utility as part of a larger organization that can leverage existing scale and financial resources. Ultimately, what we are describing is “planned obsolescence” as in products.
I’m just amazed at the $20 million / month burn rate. Granted, I’m not a facebook junkie, but it seems to me that for that much money a month I’d be expecting more. l imagine they have tremendous bandwidth and hosting costs, but if the majority of that is payroll they have some serious issues there.
Cant be payroll with the relatively small operating staff they have
I think you’re all missing the point…they’re going to sell ads…big ads…lots and lots of ads…it’s going to be wonderful [insert video of CMO tossing a stack of RFPs into the air and skipping down the street].
$6B for Facebook is a steal, i get it myself.
cheers
The fundamental questions is: Does users growth justify valuation growth. The kicker is that monetization on a mass scale hasn’t occurred yet. My hunch is that PE is not like VC and KKR and the bunch will want to see free cash flow before they are willing to give FB a valuation of 6 to 7 billion.
If they reach 1B users they’ll have to also scale up their costs (bandwidth, sales force, new magic stuff no one has thought of yet that will cost a lot of money) and possibly reach a $50MM to $100MM burn. They currently have a face-value operating deficit of $5MM a month…so, while they also need to turn the tides on that neg-margin just to become cash-flow positive, they’ll have to linearly (or hopefully progressively) grow their revenue at a rate at least 2x faster than they grow users. Otherwise, they’ll never generate the $2B in rev they’ll need to justify a crack-smoking buyer who’s offering $6B on a 3x gross at some point in the future. Oh yeah…I forgot…they’ll maybe net $200MM out of that if they follow my instructions above…so that crack-smoking buyer would be picking up a 30x on net cash. And that would be just to make the current weed-pulling would-be investor come out even (if they find one).
Also, where are those users going to come from?…mexico?…china?…EU?…Africa?…??? If they haven’t figured out a way to scrape a few bucks from the richest users they’ll ever have (i.e. the current majority US base), they’ll fail to exploit those un-captured masses around the globe.
A lot of people who use facebook come from the developing world. That being said, advertisers aren’t willing to pay high click through rates to get to this group. Which makes since because they may not have the means to buy their products. I think fb is a great company, but they need to start looking at the monetization questions now.
fascinating and very very serious problem they have
Power: It won’t pay their investors.
Why is it so hard for people to grasp the concept that yes, Facebook is a very popular site–However, Facebook is not a very good business?
What is it with Silicon Valley that equates popularity to value?
Popularity does not always equal value.
“What is it with Silicon Valley that equates popularity to value?”
one word: YouTube
Word
looks like FB is starting to come back down to earth and if it doesn’t work out, desperation will ensue.
A quick and simple way to look at the valuation is revenue and earnings multiples. Since there is no earnings, I would say maybe 2 to 3 revenue multiples. The reason for the low revenue multiples is that the growth will be saturating soon and high burn rate. With $20M/month, it will burn $240M. This is like mini-GM. Does anyone knows FB revenue?
Right now the value of Facebook is near zero. People forgot the story of Friendster
It’s the same story every month. TC will come out with an article like this. Then people will point out how easy it would be for FB to increase their revenue–they just don’t feel like it right now.
Facebook has jumped the shark.
Clifford: Facebook do not need a management change. They are heading in the right direction which was presented to the investors and they seem happy with it otherwise they wouldn’t have already invested $500m+ into the venture
I hope all the investors lose every cent they put in to this company. Epitomy of bubble.
People like Thiel get lucky once–equivalent of winning the Powerball, and go on to think that they are God and can do no wrong.
“In addition to Facebook, Thiel has made early-stage investments in several startups, including Slide, LinkedIn, Friendster, Geni.com, Yammer, Yelp, Powerset, Vator, Palantir Technologies, Joyent and IronPort. ”
Wow, what a list of stinkers.
As anothe poster mentioned, just becuase something is popular doesn’t make it profitable.
There is really nothing special about the services provided by Facebook. Its two redeeming qualities are the fact that it is free and that it is not saturated with ads.
They have two ways to monitize: Saturate the site with ads or start charging for use. Once they start doing either I expect that users will flock to another free site that has minimal ads.
I am at a loss trying to understand why anyone would invest in a company like this. People expect this stuff to remain free forever and they quickly get turned off by tons of ads. Given their expenses I don’t see how they can ever become hugely profitable.
I don’t understand how a company that doesn’t turn a profit, never has turned a profit, and never will turn a profit can be worth ANYTHING!
Exactly.
They’re looking to IPO and run.
Facebook should simply charge a fee of $5 a year because its not big deal to users who value the service. The fad users may leave to MySpace or others, but they have to re-start again and the time & effort to do that costs more than $5/year. These fad users will think twice before moving to another free service and unless their group of friends are also moving, they will eventually come back.
Although I am not a facebook user, because I view it as something time-wasting & useless for me, I take my hat off to Mark Z for doing what he’s doing. We all want to be successful and anyone who doesn’t must be disingenuous.
it may cost more than $5/year to you, but people that create heavy-content FB profiles dont have anything better in their life than wasting time for thing like that. trust me – the would rebild it five more times!!
Facebook, guess what? The HYPE is over baby. TWITTER ate your fucking peanut butter and jelly sandwich. You aint worth shit like you thought you were back in the day. You can also thank a recession for that too.
Any VC firms silly enough to put them at 5-6 bil valuation are suckers. Exit what? If and when Twitter rolls out a full social network site as an additional service / separate site what the fuck will you do?
Just what does FB really have here? 200 million users 70% of which are dirt poor freeloaders, hate spam/ads, and a UI that really sucks and is pretty lame. I predict a drop in engagement time with FB users within the next 6 months. After which the valuation will be more like 2 billion
Kid the ride was fun while it lasted. Sell the fucking company. You are not Steve Jobs, Bill Gates and will never be. hell you are no Sergey Brin or Larry Page either. You are a small friggin potato.
Idiot, Twitter is in the same boat as Facebook. Twitter is going bye-bye too.
Maybe not bye-bye, but a reality check. Here’s the deal. When a new service arrives with a serious business model that people don’t mind paying for, for “relevant value” that is, the valuation of Twitter would be in question. Think about it, you have a similar service that charges users $1.09 per month at 2 million users. That’s serious cash flow.
Take away the pictures, and video (which you don’t need) and provide a useful information service and I don’t mean some LBS for the iPhone to tell me where my so-called friends are you will have a winner. $2M of revenue is $2M more than Twitter. But the root cause is the outdated thinking of VCs that continue to invest in the “same ole thing”. What a shame because these are fairly intelligent people that insists on investing in companies with no viable business model despite what they tend to proclaim on their blogs and speaking engagements.
yes, but how much money for operations, IT, staff, office et you need to give that 2 million users a decent service??
people like you (no offence) thinking this way just showing they have no idea whatsoever what they are talking about and never had such a business in real.
Trust me, when you get to 2 mil users a month and wil charge them $1 a month, I can bet my both legs you say: oh shit we have to start chargin $25 a month JUST to make any money at all!!
facebook sucks myspace copycats
I’d rather give my money to Bernie Madoff than invest in Facebook at a $4B valuation.
At least with Madoff, I might be one of the early investors that gets paid off before the Ponzi scheme collapses.
With no $10B+ liquidity event in the forseeable future (or ever), any future rounds are going to be purely for suckers.
In terms of users, it doesn’t make any difference whether you have 10,000 or 100,000,000 if you cannot monetize them sufficiently to become a profitable business…
Well said and true.
Unlike LinkedIn, which both the unemployed and recruiters will pay to use. As well as marketing and sales people and advertisers of business software and products, and hr products.
The biggest danger to the investors in Facebook is the rapidly changing state of today’s game. The moment the next new thing gains enough momentum…Facebook’s value could quickly start sliding off that cliff over there. http://www.twit...m/dlevinethinks
Here’s why they need this much cash. http://bit.ly/p7LlG This NT Times piece describes how “free” is simply NOT a sustainable business model. Period. Twitter, FB, YouTube can say what they want, but the reality is, the advertising model is a mythical creature that creates value only for a few companies and we know those companies.
The bottom-line that most of my colleagues and others have failed to appreciate, is that “free” is done as a viable and legitimate business model.
the New York post “tends to be a bit sensationalist at times”????
What about Tech Crunch. Remember that great headline, “Obama Spurns Silicon Valley” because he chose someone from Virgina to be CTO. See comments to that article for explanation about how stupid and inappropriate that headline was
It was good visiting your site.
Looking forward for a fruitful working relationship in the future.
Kind Regards.
Jemima