In the last couple of weeks Facebook received and turned down a term sheet for a new $200 million venture round of funding that would value the company at $8 billion, we’ve learned from a source with direct knowledge of the proposed transaction. We’ve also heard that they’ve received at least one other term sheet that valued the company at $6 billion.
Facebook declined the term sheet based on the requirement of a board of directors seat, says our source, and not the valuation. This has been a touchy subject in the past as well. Founder Mark Zuckerberg has three common stock board seats – one empty, one he holds and one held by Marc Andreessen. There are two preferred stock board seats, held by Peter Thiel of Clarium Capital and Founders Fund and Jim Breyer of Accel Partners. Zuckerberg seems to be quite serious about retaining control over the board of directors. Investors David Sze of Greylock Partners and Paul Madera of Meritech Capital Partners have non voting observer seats.
Facebook is also now pitching financial projections well above what we’ve previously heard. The highest 2009 revenue number that has leaked out of Facebook is $400 million. But investors are now being told the company expects $550 million in 2009 revenue. 2008, they say, rang in at around $280 million. The previous best information on 2008 Facebook revenue was $230 million from eMarketer.
That’s quite a jump in revenue. We’ve heard that things are going swimmingly at Facebook on the revenue front, but $550 million this year may still be quite a stretch. Or even perhaps unrealistic.
But apparently that revenue growth is getting the company to a valuation it could stomach other than the board seat issue. Facebook’s last round valuation was $15 billion, but those days are long gone.
The last few months have been crazy with rumors. BusinessWeek reported that Facebook was looking to raise $100 million in debt. We reported on early term sheets in the $2 billion range. Even Google was sniffing around the company to see if they could buy it on the cheap.
We have no information yet on whether or not Facebook is continuing to pitch for new money, or if the rumors from last weekend from VentureBeat that says they’re close to closing $150 million from existing investors in a common stock sale that would value the company at around $4.5 billion. But we have near confirmation that they recently turned down an $8 billion valuation simply because the investor wanted a board seat. That means they think they have other options.
If you listen closely, you can almost hear a pop.
…from the wine bottle they opened to celebrate their ability to maintain a way over-valued valuation?
Jon
http://WoodMarvels.com – Create Unique Memories
welcome “until fb cannot turn its users into revenue.. they run out of money” comment flood. Fools, any service that adds real value will strive
Wow, big money.They can earn that big because people like me 24/7 addicted to facebook!
Are you buying crap from FB or their sponsors? I’m not, so I have to wonder how they are making all of this money.
So, a seat matters more to Zuckerberg than anything else. Probably he too has read corporate histories – maybe afraid that he shouldn’t become another Steve Jobs with the board turning against him. Wise chap.
Desperate companies will resort to desperate measures. I predict they will be selling user info to marketing firms asap. Age, location, gender, favorites, are all for sale for the right price. The economy will tank more and marketers need that data now to survive.
nice twitter vs facebook
bunch of dumb asses are running facebook.
the late night comments are always so insightful.
i speak my mind after 3
I speak mine after three stiff gin and tonics. Oh wait, is that what you were trying to say?
$550m in revenue and an $8bn valuation seem like fairly good going to me.
So are posts that rely on “near confirmation” and hearsay. I can write 500 words of speculation too.
lol
Someone who’s website tagline is “we has it” calling the FB crew dumbasses?
LOL@me and who’s!
That’s about the revenue housetrip expects for 2009. Wish we could turn down an evaluation like that!
I believe Facebook should be more then happy with evaluation at 8 billion
True. Zuckerberg would have thought of the funding offer as a snobbish birthday gift that he turned down!
It is hard to believe Facebook is worth that much…I think Facebook is not popular outside USA. Actually it is very hard to believe a company can be worth that much with such a low revenue….
http://www.livbit.com
Facebook is going to be big… you know how i know? The laggards are now joining… in the last few months i have had the most tech averse people join.
Also, FF & twitter may have implemented the streaming things… though with the new FB commenting and streaming features the majority of users are not going to leave FB for twitter or FF
Although I closed my Facebook account a while ago, last time I checked, all the people I remember I met sometime were there. But once you’re in, it becomes a time hog. Don’t know how many people realize that.
For your average Joe, facebook is the best thing going on in their lives. Think about it, it gives them a break from the regular routine. Work, Gym, TV, Sleep. Now throw in facebook in-between those times. People will think they got a lot of “fun” in their day.
No.
Because in 2021 Facebook would be valued 150 billion! Say some people here.
It’s worth nothing other than eating up people’s time, resources and talented people who have their hands full to control and sustain it.
Why do they need the debt?
who said anything about a loan?
My take on this: He’s right to turn the deal down: http://startupc...trol-worth.html
wrong. its always about the money
people have been talking about facebook like they are on their way out.
but here is a 5 year old company doing almost 300 million in revenue, being offered a valuation in a recession at 31x 2008 revenue.
I think Mark isn’t in it for the money and is devoted to building a transformational company. obviously others agree. it’s great to see such confidence coming from within, with external validation.
good luck to him & the team.
Yes, Mark doesn’t seem to be fiddling with Facebook for money. Five years is a long time and Mark should now know the trick of the trade though he started off in a dorm room. He wants to keep the board in his hands only to prevent future problems as he knows anything can happen if the board turns against him.
Or 12x 2009 revenue.
Revenues from what? Advertising? Marketing?
Is this just a Bubble Revenue Claim to make the Valuation go higher.
What will the final 2009 Profits be?
Strange that they got such high valuation in the first place. Even more strange that they turned it down.
Does anyone know how Facebook plan to double their revenue? Without any new ground breaking revenue streams surely thats impossible?
From previous posts on this site we know facebook is burning a serious amount of cash and has not yet worked out how to turn the 200m+ users into revenue let alone profit.
Reports today show myspace is in trouble, could this just be a sign of things to come for facebook?
5 years from now Facebook will be a $100bn company.
They will achieve this by becoming the primary payments system for the web.
Im sure paypal, google and mobile operators will have something to say about that let alone creditcards and banks
Hey Michael,
Any further insight on the costs? If your previous post (http://www.tech...rowing-problem/) was on the money, then factoring in growth rates (employees, hardware, usage) then costs can’t be too far behind revenue, right?
It’s still quite difficult to imagine it isn’t making profit on that kind of money…
c.
I’m one of those who joined “late”, holding out for far too long thinking it was a playground for kids with too much time on their hands. Now, I’m connected to a number of friends from way back when, have started a group for customers of our service (HomeCamera), and find myself “dipping” into FB several times a day (just to see status updates, no games, honest…). I find myself a huge proponent of their service, encouraging the last hold-outs to get out of their caves…
By all accounts, these guys have a very smart management team, to say nothing of the smart people at the VCs backing them. I’m absolutely confident they’ll figure out the revenue piece – it’s a matter of time and experimentation.
Disagreement is one thing, but when I read extreme negative reactions, the thought that goes through my mind is invariably “sour grapes…”
- Varun
Founder / CEO, HomeCamera
you’ll get sick of it /bored with it after a while. They all do.
half a billion dollars in funding. what can they possibly spend that money on or is there bandwidth getting on for an exabyte per month?
Hats off to Mark and his team for getting to this point.
I don’t think Facebook really need this money. The only thing I can think of are the need to make strategic acquisitions.
Why would $550 million be a stretch? Ad revenue plus virtual items can scrape this number for them swarming over 200 million users.
this sounds like propaganda leaked by the company to push other investors to a valuation without strings attached. It simply doesn’t sound credible because board seats/rights can always be negotiated to protect Zuck. This is pr and spin and TC is going along for the ride.
Of course it’s propaganda.
Arrington himself to come out with this story?
How much money does TC get from FB, Twitter, Apple and Google for promoting their shit over and over again?
Ad revenues and page views are plummeting so I guess some extra bucks or shares wouldn’t hurt, eh?
I call shenanigans on this! NFW any of the deals proposed this year exceeded $4B-5B.
Good attempt to try to have people bid against themselves at a higher valuation!
Good day, sir!
Rule #1 in finance:
When somebody offers you money. You take it!
This child (Zuck) needs to stripped of some of his power. The fact they’ve lost a number of talented executives really says it all. So, saying no to $200M cash infusion is the nail in the coffin.
When you will do what he did, father, you will be giving us your valuable advice. Withhold it until then please.
What’s most noteworthy about this news is the revenue: $550 million. We forget there was a time when Facebook was struggling to generate revenues proportional to its popularity. That they’ve done this in a difficult time for advertising is encouraging not just for Facebook but for other ad-driven business models.
agree 100%. and what’s even more noteworthy – does FB really believe the number.
if alexa is to be believed, FB and Yahoo have roughly the same share of global pageviews. Yahoo’s 08 revenue was 7B. even at 550B, FB looks awful
mark – take the money now! i don’t know how long my facebook addiction will last, and i’m sure something better will come along!
Let’s just see what those other options..
I would just like to note that optically an $8billion valuation could not actually be the real offer. It seems like there is a big disparity between the $2-4billion and an $8billion. The offer could have included minority blocking rights, a redeemable security, dividends and conversion rights that may not have been acceptable or palatable for Facebook. 16x 2009 revenue is a difficult number to sell to a group of investors if you aren’t writing in guarantees that are backed by the existing equity in the business.
Does FB have some new and innovative game changing strategy in the works? If not, 8 billion is pretty damn good.
where the revenues come from , advertising ? That’s it ?
So they are trying to find some one like microsoft who could value them at $15B and invest in them
I’m sure FB knows it needs a business model. I think FB has the best people on it. Shoot it better….. for survival sake.
Facebook…$100B? Uhh, no I doubt that. $8-10B right now sounds about right (due to the fact its going to be awful hard to convert all those users to real income).
8 billion valuation? Laughing my ass off.
The term sheet should be interpreted as 200 million for a seat, which translate to 200 million for 20% controlling interest. A rough valuation of facebook at 1 billion.
Of course that will be rejected. Cost of stock financing is higher than debt financing now. Facebook should do a 200 million debt financing round. But then again they are turning into GM lookalike. Federal bailout please?
Good for Mark and FB! He wants to make a difference with the platform and he’s sticking to his guns. I trust he knows what he’s doing. I don’t think people will ever get sick of FB unless their friends start to bail out and it goes stagnant (e.g. Friendster). It’s nowhere close to that – people are always active on it. I also think there is still a ton of creative and new opportunities for them to monetize and create revenue streams. Keep doing your thing Mark!
Great to see they see some revenue, They are doing well
This is extremely encouraging. It’s a good sign for all of us in the Valley and on the web that there is enough confidence to make control a priority.
$550M is a serious amount of revenue, and if they are showing some margin on that (ie reining in operational costs) this could justify a big valuation, which would be good for all of us in the web space.
Negative commentary about facebook shows a lack of imagination.
If they are expecting $550mil in revenue this year, they shouldn’t be so hard up for more investors. Obviously there is something seriously wrong with their projections or they aren’t running things so efficiently. Maybe they do need to get in bed with Google. Maybe then they wouldn’t be throwing down a couple millions a month for new servers to handle their magnitude of image uploads. They seem to be wasting money at an alarming rate.
“If they are expecting $550mil in revenue this year, they shouldn’t be so hard up for more investors.”
Clearly they are NOT very hard up.
Say, Michael . . .
. . . the second paragraph of your story says that one of Facebook’s five board seats is empty. I do not believe that is so. Facebook announced in December 2008 that Don Graham (CEO of Washington Post Co.) was joining the board.
This was widely disseminated and should be in your database, no? I have not seen anything saying he has left since then.
I’d have more confidence in your many, many scoops about Facebook term sheets (which are fascinating but erratically sourced and somewhat, um, inconsistent) if simple background facts like this were reported accurately.
Doesn’t matter if you make a 10 billion dollars revenue if you have 20 billion in costs.
The same goes with 500 million.
I deal with this all the time in the affiliate marketing space “I made 200k last year” — but what you don’t hear is that it took 120k to do it so in reality it was only 80k profit.
What you make in revenue is not your profit.
Except they are making $500 million with 1,000 employees which is practically unheard of.
Facebook is just becoming an image dump. People store thousands of photos, only the most recent get viewed. The rest sit their on servers taking up space an energy and sucking from the Facebook teet.
Interesting post. lets see what’s up in their sleevs …
IF it is true at this stage of the company’s development that Mark Z. turned down a term sheet at a valuation the board felt was acceptable because the lead investor wanted a board seat, this would mark the ABSOLUTE HEIGHT of irresponsibility. He would be putting his personal interests before those of the shareholders in a big way, which is BAD.
While I had heard that the revenue figures being publicly discussed previously were low, I find it very difficult to believe that Facebook could find investors at $8B. The $2-5B valuation sounds more reasonable to me.
Facebook will make huge xXx $ gUaP $ xXx regardless
Michael, just a couple of points of clarification on eMarketer’s Facebook estimate. I estimate that marketers will spend $230 million to advertise on Facebook in the US in 2009. This figure doesn’t include international ad spending. When you factor in international ad spending, we estimate Facebook will net out at $300 million. Both figures are only ad spending estimates; they don’t include any other type of revenue Facebook could generate this year, such as virtual gifting, ecommerce, rev share with developers etc.
Thanks,
Debra Aho Williamson
eMarketer
I believe Facebook will be hugely profitable. I base my reasoning on the fact that they offer advertisers great value.
At least here in Finland I am personally seeing extremely well targeted ads based on age, sex and the fan pages I have joined.
What makes it even better for advertisers is the fact that with Facebook, all of this data people have given about themselves tends to be correct.
I personally run a really small scale web publishing business as a hobby. I make web pages and put affiliate ads on them. Then I drive traffic into those pages. If my cost of driving traffic to those pages is less than my revenue from affiliate ads, I make a profit.
With Google Adsense, I can drive people to my pages based on keywords. Then I can see things like people searching with the keyword “snowboard” have a 2,4 % probability of buying a snowboard from my page. If I pay 0.40 dollars per click and I get 5 dollar commission on a sold snowboard, my profit is 0.024 * 5.00 – 0.40 = – 0.28. I believe this is called something like marketing and sales funnel in English.
With Facebook, I can target those people with my ads who have put into their events calendar that they are going snowboarding to the Alps the next winter. I can target people with snowboarding as their hobby. I can target people who are 35-40 yo, single and active.
From my point of view it seems that the demographic data that Facebook provides is a much more relevant variable in my advertising profit function than the keywords people use in search.
Yeah, Facebook is going to be making a lot of money regardless. I wonder how it must feel to earn such a money making service like that. Such revenue o_o
The only social networks to extract decent revenue from users are the likes of Swededn’s Billdagboken.se with 1.2 million users. It is way ahead of the game compared to facebook.