Facebook is taking that rumored $200 million investment from Digital Sky Technologies, a Russian investment group. DST will take a 1.96 percent stake in the company, giving Facebook a $10 billion valuation. Facebook ultimately did not have to give up a board seat to DST in return for the cash. But DST is getting preferred shares for it’s $200 million.
When Microsoft bought preferred shares, it valued Facebook at $15 billion. Since then the market has come way down and various valuations for Facebook have been thrown out between $4 billion to $6 billion. And recently, Facebook turned down an investment valuing the company at $8 billion, with the stipulation that the investor get a board seat. During a conference call today, CEO Mark Zuckerberg he confirmed that other investors had approached Facebook, saying: “It was really at our option to find someone we wanted to work with on our terms.” No doubt, part of the appeal of taking the Russian money was to set the company’s new valuation at something easier to stomach than what the common stock was going for in private sales.
But this investment may affect the valuation of the common stock as well. Additionally, DST has the option to buy another $100 million worth of common stock from existing employees and investors. Although, during the conference call, the suggestion was made (update: confirmed) that these are being treated as two different transactions with different valuations. Facebook announced a program last year to let employees sell some stock to private investors, but that program was put on hold. Facebook hopes to give some of its employees liquidity with this separate deal with DST, which it views as a long=term investor.
Despite recent public statements from COO Sheryl Sandberg saying that Facebook does not need the money, it can certainly use the cash to fund its growing operations, including bandwidth, storage, and engineering costs.
During a conference call, CEO Mark Zuckerberg says that the investment will give Facebook “a good cash cushion” and give the company more flexibility “for strategic options” (which is code fro acquisitions), although he also says the company has “no plans currently.” It is not clear that $200 million is enough to buy the company it really wants to buy (Twitter!). Zuckerberg adds: “This investment is purely buffer for us. It is not something we needed to get to cash flow positive.” He expects Facebook to be cash flow positive in 2010, and says the company has been EBITDA positive for five consecutive quarters, going on six.
And what about an IPO? “It is not something we are thinking about right now, not something we are rushing towards,” claims Zuckerberg.
For some reason, I have started to spend less time on Facebook. I am visiting facebook once a week now. Most of the feeds that I see on my News Feed are either Blog post, someone marketing or stupid people posting things like “Jack Smith is…”
I wonder if Facebook’s time is up and how they can be more relevant.
Facebook appears to now be a meeting place for stay-at-home moms.
Ahhh..MILF. Can’t complain there.
Hah, are the desperate housewives looking for booty calls from the milkman or ups man? It seems the newsfeed is a lot more larger, and you just see twitter updates but nothing about friend adds, which were usually good to see when a new friend has joined your network, so you can add them. I don’t really care about people’s twitter posts.
MILF does a body good.
introduce me
I am getting most feeds from twitter these days.. simpler and more efficient.. get more done.. fb maybe morphing to more of a content host of some sort.. and twitter may morhin to more of a virtual social networks.. that sounds crazy..
“Blog post, someone marketing or stupid people posting things like “Jack Smith is…”
You sure you don’t mean Twitter?
Mike D – Same here. Might be because of their recent design changes (including those “What’s on your mind” changes making it look more like twitter).
Also, there’s only 24 hrs in a day. If you’re spending any time on twitter or at work (ironic that those working are working harder than ever vs those out of work), that time is taken from someplace less.
in the end, getting another 200 million is a huge win regardless of what that valuates the company.
The problem might be your friends on facebook. not facebook itself. Updates come from your friends afterall. just sayin..
No he’s right. It’s facebook.
Guys i just found this site i am not an employee or a marketer.But my observation is this new site looks promising. Well for the most part they are ginving you a free USA number to make and receive calls and a lot more than facebook gives you. Just a stay at home Dad
http://www.bueno.com
It seems to me that at some point investors will stop throwing money into the abyss. Facebook had already taken in and burned through ungodly sums of investment capital without creating significant shareholder value.
At the end of the day FB seems to be a collection of useless, irrelevant widgets that do nothing other than annoy the hell out of the user. Do you really want someone to send you a “Join My Mafia Family” request or “Virtual Drink?”
If FB wanted to develop revenue streams that made sense, did not impede or degrade the user experience they would have integrated innovative, neatly packaged affiliate revenue streams and some through-lines that tie the community together in meaningful ways.
From everything I have read there does not seem to be a real strategy unfolding at FB, at least LinkedIn and MySpace, which I really don’t care for have opted to hire experienced CEO’s to take the helm and find a way to extract some value for the stakeholders.
I am not sure that DST will ever see a return on their investment, and frankly for a company that has very little revenue getting 1.96% for $200M seems like a really, really poor decision. They would have been better served investing that $200M into sick R&D research on renewable energy sources, that is however obviously just one mans opinion.
-Mikah
P.S. never type quickly and hit submit. I just noticed that I made a redundant statement “R&D research,” no need to correct me.
epic fail
Let the crook fail, epic.
FB = twitter = fail
This broke on WSJ.com first
smart move.
before facebook fails, DST has the option to buy another $100 million worth of common stock from existing employees and investors.
early employees can sell their stock at pseudo-ipo rates.
i wonder if they really have “an option” to buy the common. If I were facebook, I would have made it a requirement.
That’s definitely a great do for Facebook. My personal belief is that Facebook will eventually be able to monetize and ultimately profitable.
Sure they can find a way to be profitable, but $10 billion dollars is a huge stretch.
..isn’t taking “investment” money from suckers profitable????
Maybe they can use the money to buy Twitter and REALLY lose money.
Hey Ponzi schemes are profitable for some people too! Maybe those connectU guys can sell their shares now, haha!
i know techcrunch is the land of the bald assertion of received wisdom, but why do you “believe” that they will be profitable? there certainly isn’t any indication so far, so if you have data to rely on, let’s hear it.
2% наши
неужели кто то серьезно думает что Fb от этого станет хуже?
DST явно пытается упрятать деньги подальше от России. Ну может они хоть урезонят ВКонтакте под это дело?
This smells fishy!
Oh, that’s just your mom.
Very smart of Zuck to take the money, since Facebook will be an irrelevant and worthless within 5 years time.
yep. you said it. it already looks and feels like a circus. beads, pokes, drinks on me…..stupid stuff. true open social will obliterate fadbook. users will leave in “3 clicks” of a mouse in an attempt to get serious about who they are and where they are going. users realizing friends dont hire or pay your bills and there are alot more productive things they can be doing.
ProfessionalLocator.com – promote yourself
Facebook is just like Friendfeed, but without all the valuable stuff.
“We don’t need the money”
But a sketchy bunch of Russians with a ton of money to launder and an inability to read an American balance sheet or P&L show up with a couple of duffle bags full of Benjies and suddenly Facebook is on its knees faster than an meth-addicted Estonian hooker???
You know the reason why, don’t you?
KICKBACK !
Putin wins! At least he looks hotter with his shirt off than Obama and Sarkozy, kidding.
Look: this is preferred stock so the valuation is meaningless. If it’s convertible preferred, then the valuation associated with the conversion would be higher than the current valuation (or else why not just take common?) and thus would mean that FB is worth less than $200mm. This doesn’t smell like a deal that would be attractive to a company that doesn’t need cash — the 1.96% stake mentioned makes it sound a lot like convertible preferred, and what company would hand-out a down-side protected preferred interest that also had access to the upside through conversion? That’s investor protection, not company protection and so FB needed this money.
“worth less than $200mm.” Oops! $10b, of course.
Congratulations, Facebook!
The business model for Facebook is basically the same as that for Springtime For Germany. Keep selling those worthless shares for whatever you can get.
does MSFT get a say who can be an investor?
@DaTruff
lol. you took the words right out of my mouth!!!
A bit disappointed to see that they accepted the investment from an offshore (Russian) company. Nothing against DST but I know there were a handful of US Based Private Equity and VC Firms that would have likely committed at this level or close to it. Looks like a Single Board seat was the issue and Mark is trying to keep as much control as possible. Good for DST for making the deal happen. High Valuation but all things considered I think a good deal for them and nice to finally establish another bar for the current valuation on Facebook.
An odd investor, most will never have heard of this “world player”.
Although this brand is still yet to peak, its a bit like a store where a whole bunch of people go in, but no one buys…
To the man watching at the front door- it looks like they just need the right products on the shelves, so its a shrewd investment for footfall, but in reality if it was that easy- wouldnt MSoft have done that?
The solution was to have offered apple the first stake, as the iphone app store really will make ROI.
Man, if I were one of the ConnectU guys right now I’d be one angry person.
2 percent lol
With his past business dealings, do not trust Zuckerberg. He has screwed his friends and previous investors countless times.
The masses have moved onto Twitter and Mobile alternatives. FaceBook (aka the CIA database) is going to be like MySpace in a year or two…dying a slow painful traffic death.
“The masses have moved onto Twitter and Mobile alternatives.”
umm, no. Twitter has maybe 20 million users, and that’s generous. FB has over 225 million.
While it’s not as fun or splashy anymore (you don’t see five stories a day here like with Twitter) FB has truly become mainstream.
I don’t know how they’re going to be profitable, but they do have the largest amount of data on human interaction maybe ever. I wouldn’t bet against it.
And besides, if its facing the fate you picture, you know how the Russians react:
“If he dies, he dies.”
how many of those 225MM have been logged in in the past month?
Probably 10X more than Twitter. The foreign growth is insane too, and those guys and gals do log in often, even if it’s via a phone.
It’s not a flash in the pan because of the stickiness of photos, etc. FB is truly mainstream now, and they’re generating some revenues. Don’t know if they’re going to be a Google-type behemoth, but I could easily see them eeking out a profit in two years.
Facebook’s graph is again on upswing. But whether all these social networking sites worth it. These all sites have been over hyped.
LOL, what a joke. But hey they need more bandwidth for having basically doubled or tripled their users depending on which perspective you take.
Thus if they wasted the cash in the second round and really did not factor in anything above 300 million registered users a.k.a passing the then leader MySpace why do they need the money?
Heey if mark can get the company sold for 10 billion I am all for backing him on that. Regardless if it is worth that or not. But funny Arrington use to smash start ups such as Cha Cha and they getting millions for doing crap.
So is it the same to say fazebook is really worth the 10 bill?
The people that have vested shares should cash out now.
Moreover, they should consider themselves lucky.
A $10B valuation? For a company that is already through its boom period, and with no…adequate revenue/profit stream?
This Russian investment fund is quite foolish, and if I was an investor/LP in it, I would be regretting it.
They are sorely mistaken if they think they will get outsize–even moderate returns on this investment.
But conversely, you have to give it up for Facebook’s CFO and his team.
This is a great move for them.
Haha, yeah, I’m going to take investment advice from some anonymous dumbshit like you. And by the way, there’s a reason why you’re not an investor: you have no fucking money to invest, and you don’t have money because you’re a stupid piece of shit.
Zuckerberg, is that you?
a little butthurt ?
Okay first they introduced the Mafia game on Facebook and now umm well I think I close my account because this investment smells like Russian Mafia.
Don’t mess with Russians. They know how to play hard ball
Grammar Nazi’s pet peeve says “its” has no apostrophe. Yeah, hate on me, I just had to do it.
Мы в Guias Local хочу сказать поздравления Facebook. Мы желаем вам долгих лет успеха. Не слушайте плеер ненавистников.
long=term ? or long-term ?
OMG Facebook is selling some pieces of its compaty!!
Can I Buy something ?
Facebook is good, no question. They own their space and they have proven they can keep folks coming back. It will be interesting to see how things shift and if they can continue to add new young users as their parents continue to join.
At some point they had to quit looking the gift horse in the mouth since they spend money like crazy and haven’t figured out how to make money at the same rate
An IPO would be the accelerated death of Facebook. They already culturally run screaming from the suits in their Lord of the Flies environment. All Screech needs is public shareholders to demand his company to grow up.
LOL @ Screech…
In Soviet Russia, Facebook invests in you!
All things considered, that’s a pretty good deal for Facebook. Rock on!
$200 million for a 1.96% stake in the company, sweet deal, take it every time. fb likely needs the cash a bit more then they publicly announce but that seems like a solid deal at a high valuation, they would be dumb not to grab that dough. Also keeps the company fully independent and able to set its own course.
It is also noteworthy that DST owns http://vkontakte.ru/, a Russian copy-cat version of Facebook.
LOL that is a shameless rip!
Facebook is definitely not worth $10b now.. But it’s a very smart buy
My god…I cannot beleive that TechCrunch cvonsiderts themselves knowledgeable on tech and internet and they are STILL reporting that bull**** report that the Microsoft deal valued Facebook at $15 billiion. Not ne single person at either Facebook nor Microsoft considered the value of Facebook to be $15 billion. MOST of the money Microsoft paid was to keep the exclusive advertising deal..NOT fo the stock.
For hte idiots who work at Tech Crunch…let me try to explain it in a way that you might understnad…as a 5 year old would. I ask to borrow your car for the wekeend. I offer you $50 to do so. When I get in your car, I notice a pack of gum in hte center console and ask if I can have a piece. You say “sure”
Did I just value that piece of gum at $50?
Congratulations, now Facebook is in bed with one of the most notorious Russian mobsters, Alisher Usmanov: http://en.wikip...tion_and_pardon
BTW, for a better description of who Alisher Usmanov is, please visit Craig Murray’s blog at: http://www.crai...er_usmanov.html
good job on both sides. freakin represent!
Is there a Russian Facebook? Is it controlled by Putin? I guess those rumors of Putin trying for world domination are true. He owns the North Pole after all. Those Zuck have ancestors from Russia, maybe he is a Russian informant!
What happened to my comment about Russia investing in American companies and how wonderful that was? It’s gone and so is another commenter’s comment agreeing with me. Was it because I referenced the original typo on the valuation headline? Guess I’ll go back to Twittering instead.
I feel like I’ve seen a ghost. There appears to be two posts running on TechCrunch about this event which is where the other comments are:
http://www.tech...ference-call-2/
I must be running on too few hours of sleep.
ahhhhh…..i love these crazy valuations.
when is facebook gonna make some money?
Wow, must be nice having barrels of money!
RT
http://www.anoweb.alturl.com
That was a bad investment.
Facebook will be as irrelevant in 5 years as myspace is now.
I’m glad to say my real life and personal information is not part of their database.
More like 2 years
that’s alot of money!