How Much Money Has Facebook Raised?

There’s been a number of differing estimates about how much money Facebook has raised. TechCrunch pegs it at $493 million.

But here’s what Facebook CFO Gideon Yu told me: Facebook has had 4 rounds of equity capital financing and two rounds of debt financing. Here are its investors:

Microsoft: $240 million
Li Ka-shing: $120 million
Group of individual investors: $15 million

Before that Yu says Facebook raised another $37.5 million from a “B” round venture investment from Accel Partners and a “C” round investment from Greylock Partners and Meritech Capital Partners.

$12.5 million came from Accel Partners in May 2005. And in April 2006 $25 million came from Greylock Partners, Meritech Capital Partners and Facebook’s existing investors Accel Partners and Peter Thiel also participated. Lastly, published reports have said that in late 2004 Peter Thiel invested $500,000 in angel money in Facebook.

That comes out to a grand total of $413 million. Add in the $100 million it got from TriplePoint at that brings you to $513 million. But that still does not include the first round of debt financing. I don’t know how much that was for.

Facebook’s $100 Million Deal: Responding to Henry Blodget

I am not sure if Henry Blodget of Silicon Alley Insider is playing devil’s advocate or if he really believes that Facebook opted for debt financing because it “couldn’t raise the rest of that $500 million round at that $15 billion valuation.” But his question is certainly legitimate and provocative.

Here’s what I think:

1. This was a smart business decision: Even if Facebook could raise more money at a $15 billion valuation, it makes economic sense to use some minimal form of debt financing to pay for capex. It’s reflects the company’s maturation process. As my story shows, more and more startups are beginning to take advantage of debt financing. Moreover, as Lee points out, even at a discounted $5 billion valuation, $100 million in debt would give Facebook a paltry 2% debt-to-equity ratio. That hardly puts the company in risky territory even if the economy gets worse.

2. As crazy as this sounds, I think Facebook would have a decent shot at raising more money at a valuation at or close to $15 billion. Does that mean I believe Facebook is worth that much? No. But Facebook’s valuation doesn’t depend on my opinion. It’s based on the marketplace’s opinion. And already, two of the most successful business enterprises in the world (Microsoft and Hong Kong billionaire Li Ka-shing) have ponied up large slugs of capital at a $15 billion valuation.

There’s dumb money, smart money and strategic money. And Facebook was shrewd enough and successful enough to take the strategic capital. Microsoft has helped Facebook generate advertising revenue while it gets its own ad business going, while Li Ka-Shing will open many doors for the company in Asia.

Both of these players invested in the company at a valuation that most people couldn’t stomach because they believe they can generate more value on the asset compared to other entities that don’t bring as much strategic value to the table (and because they can afford to lose $100 million or more). This is exactly why News Corp paid a massive premium for Dow Jones. Is Dow Jones worth $5 billion? Probably not to anyone except Rupert Murdoch. Only time will tell if these moves were brilliant or boneheaded. But there is perverse logic at work here.

So bottom line: I would venture that Facebook has a good chance at raising more money from another strategic-type investor at that seemingly irrational valuation–especially if it keeps growing its business and starts to figure out how to monetize social networks.

Micro-Hoo: The End of Tech’s Soap Opera? Or the Beginning of the End?

In this week’s broadcast of the Digital Dish, BusinessWeek reporters Spencer Ante, Heather Green, Arik Hesseldahl and Catherine Holahan wonder if the Microsoft/Yahoo dance is really over, and then size up Microsoft vs. Google and News Corp.’s slumping Internet revenues.

Not to trumpet our horn too loudly, but we warned you about MySpace twice over the last six months. In fact, last November we first raised red flags about MySpace and how the pressure was on Rupert Murdoch to turn his prize quarry into a profit machine.

LA Times Reviews Creative Capital

One cool synchronicity: On Monday May 5, when I arrived in California, the Los Angeles Times ran the review of my book that previously ran in the Financial Times. The review, titled “Lessons From the Father of Venture Capital,” was on page D2, underneath a story about the Iron Man movie.

Nantucket Conference: Who Wins and Loses in Cloud Computing

A few weeks ago Scott Kirsner from the Boston Globe invited me to give a talk at the Nantucket Conference about my new book Creative Capital. Scott invited me because the subject of my book, venture capital pioneer Georges Doriot, operated out of Boston and was a New England legend of sorts.

It’s the first time I’ve been to the conference and I had a blast. What makes the conference special is its location, its focus on entrepreneurship in New England, and its relatively small size—about 150 people. The intimate setting–you are basically trapped on the most quaint island in the world–makes it easy to strike up conversations and relationships with leading entrepreneurs and venture capitalists.

There have been a bunch of great panels. One that I went to the morning of May 3 focused on one of the hottest and most-hyped trends in tech, cloud computing. Having written about utility computing and grid computing over the last few years (remember IBM’s On Demand effort), I’ve been a bit skeptical about the growing buzz over cloud computing. The tech industry, after all, is great at pouring old wine in a new bottle.

But the panel convinced me that there are some incremental developments in computing that add up to a new paradigm. John Landry, the former CTO of Lotus and IBM exec who today runs the angel investing shop Lead Dog Ventures, opened up the panel with a pretty good explanation of what he sees has changed.

1. The move to managed Web hosting away from running your own infrastructure
2. The rise of virtualization, which makes computing much more efficient
3. Consolidation of grid computing, which makes it easier and cheaper to tap into resources by the drink

These three changes have enabled the rise of so-called software as a service. That is, software delivered over the Web as a service, rather than software sold for licensing fee on your PC. That’s what Salesforce.com does. More recently, it has also enabled the newer idea of platform as a service. It sounds really geeky (and is) but that’s what Facebook, Google and Amazon are trying to do–creating new computing platforms that can be accessed and used as a utility-like service.

“These are really fundamental shift that never occurred before,” argued Landry. ‘The whole back end is different. Leading the way is Amazon.”

The big question, of course, is who wins and loses as a result of this shift?

Landry believes the winners will be the companies that have “enormous operational competency” in Web infrastructure such as Amazon and Google. “IBM, Oracle and Microsoft don’t get it. There may be a whole new class of leaders in computing.”

Web 2.0 startups are embracing the cloud model in a big-time. Stevie Clifton of Animoto Productions, told a revealing story that shows how Web-based computing and platforms can combine to create explosive, cheap and easy-to-manage growth. His company, which lets people create music videos on the Web, used Amazon’s Web computing services to build and host their application. Then they ported the application to Facebook, and in two weeks they exploded to 750,000 users, without having to worry about scaling their technology to accommodate that spike in growth. In other words, Animoto deftly coupled software as a service with platform as a service.

“You just can’t do that in the old world,” says Sim Simeonov, Technology Partner with Polaris Venture Partners. “We’re entering an era where you can experiment much more cheaply and quickly. You can focus on the core more and not worry about the me-too stuff.”

But while the rise of cloud computing presents a great opportunity, it also brings a new set of challenges. “It means new competitors can pop up all over the place, and they can scale quickly without me even knowing it,” says Sim Simeonov, Technology Partner with Polaris Venture Partners. Panelists such as Frank Gillett from Forrester Research say that lack of security and service-level agreements are also hurdles that need to be overcome before clouds are embraced by big corporations.

On the Road: Back from My Mini-Book Tour

Hey folks. Sorry for not posting the last few days but I’ve been on a cross-country whirlwind tour promoting my book and speaking about it.

The trip began at the Nantucket Conference on May 2-3, where I was invited to sit for a fireside chat about my book with the entrepreneur/venture capitalist/all-around cool guy Vinit Nijhawan.

This week, I took off for Northern California. On Monday, I was invited to speak on a panel about book writing at the Graduate School of Journalism at UC-Berkeley. Afterwards, Matt Richtel of the New York Times and Marcia Parker, who co-teach a course called “Covering Silicon Valley, invited me as a guest teacher. And then on Wednesday I moderated a panel at the National Venture Capital Association conference on corporate venture capital. It was a great session with Arvind Sodhani, the President of Intel Capital, and Steven Weinstein, who heads up venture at the biotech giant Novartis.

I will be publishing a few posts about these events over the next few days.

Microsoft Walks from Yahoo Deal; Ball’s In Your Court, Jerry

Wow. I can’t believe Microsoft actually walked away from the Yahoo! deal.

But while I am truly surprised, I believe Steve Ballmer made the right call. I’ve said from the beginning that this deal was too big and too risky–I called it a potential merger from hell several times around the office and on TV–especially given the cultural differences between the two companies and the fact that Microsoft had never before pulled off an acquisition of this size.

Now that the tech industry’s biggest soap opera appears to have reached its dramatic conclusion, there are two big questions to answer:

1. Why did Ballmer and the Microsoft board pull a 180 and change their mind?
There’s got to be more to this story. Some people will wonder why Microsoft did not come back with a slightly higher offer, in the $34 to $35 range, which could have sealed the deal.

Something happened during this process that gave Microsoft the willies. Maybe it was the strong negative reaction from their employees that caught management off guard. Or maybe it was Yahoo’s determination to not break. Or maybe Ballmer underestimated the greed and toughness of some major shareholders.

To me, the behavour of the reluctant shareholders is just as surprising as Ballmer’s retreat. Reports have said that some big Yahoo investors such as Legg Mason were holding out for $34 or $35 a share. Given that Microsoft was willing to offer $33 a share, those shareholders will probably live to regret that position.

But while Ballmer ultimately did the right thing for his employees and shareholders, I believe his reputation is going to take a hit in the short term. This was Ballmer’s big first play as CEO of Microsoft and it just looks a bit odd for him to reverse course on such an enormous strategic move.

Now, Microsoft needs to figure out other ways “scale” and go after Google in the online advertising market. Maybe Microsoft will try to cut a deal with AOL or MySpace?

2. What is Yahoo’s next move?
While I admire Yahoo’s toughness and determination to fight off the giant from Redmond, Jerry Yang & Co. have a lot of explaining to do. They just turned down a very handsome offer for their company. Many shareholders are going to be pissed and sell off the stock–while others are likley to launch a raft of lawsuits against Yahoo. My hunch is Yahoo plummets to the low $20s tomorrow morning. (It was around $19 before Microsoft made its $31 offer.)

The only reason it won’t fall further is because Yahoo keeps threatening to outsource part of its search traffic to Google. That could provide a short-term financial boost to Yahoo but it’s a losing long-term strategy as their share of search traffic would continue to decline, and it might even accelerate after such an arrangement. It also may never amount to much because regulators are likely to prevent the companies from cutting a substantial deal.

It will be interesting to see if Yahoo continues its merger talks with AOL, News Corp. or other partners. My hunch is that while they might, nothing is likely to come from it. For Yahoo, the merger talks seemed like more of a manufactured diversion or knee-jerk reaction than a well-considered move of true strategic intent.

So if Yahoo can’t or doesn’t pursue a significant deal with Google, and it doesn’t merge with another company, that still leaves the $44 billion question: What is Jerry Yang & Co. going to do to give Yahoo a better shot at remaining competitive ande lift its slumping stock?

Ball’s in your court, Jerry. Sometimes it’s dangerous to get what you wish for. Good luck.

As the Web Turns: Microsoft Blinks on Yahoo Deal

So instead of launching a proxy fight after passing its self-imposed deadline, Microsoft did the smart thing and tried to show Yahoo some love, so says the latest leak-story in the Wall Street Journal.

Last night, the Journal published a report saying that “Microsoft this week indicated a willingness to raise its bid to as much as $33 per Yahoo share, attempting to avoid the hostile takeover battle Mr. Ballmer had threatened, according to people with knowledge of the situation.”

The problem? Yahoo’s major shareholders “have signaled they want in the range of $35 to $37 a share,” while “Yahoo’s management and board similarly shooting for an offer in the upper 30s, say people familiar with the matter.”

My bet: There’s no way Microsoft is going to push its bid into the high 30s. This deal gets done at $34 or $35, just as I have said all along. That allows Microsoft to save some face, and Yahoo to feel like it didn’t roll over. Yahoo’s quarter was good enough, and the prospect of a drawn-out proxy battle is so unappealing, that Steve Ballmer is likely to bump up his offer just a tad more to close the deal. Yahoo needs to get the deal done because if it doesn’t, its stock would plummet, drawing a raft of distracting shareholder lawsuits.

Tudou: Chinese Online Video Taking Off

Baidu is the Google of China. But who is the YouTube of China? That would be Tudou, of course!

Shanghai-based Tudou had almost 29 million visitors each week in August 2007, more than double the 11.5 million three months earlier, based on the latest data from Nielsen//NetRatings. Tudou’s closest rival is Youku.com followed by 56.com, which are both Chinese-language sites.

And it looks like Tudou could extend its lead now that it raised another $57 million. Although the company did not disclose its investors, reports have said the money came from IDG Technology Venture Investment, Granite Global Ventures, General Catalyst Partners, and a member of the Rockefeller family. (IDG Ventures, Granite Global Ventures and JAFCO Ventures invested in a previous round.) Tudou, which began operations in April 2005, has now raised a total of $85 million.

Chinese folks love online video. China was home to 210 million Internet users at the end of 2007, according to the China Network Information Center. About 77 percent of Web users watched online videos last year, more than doubling from 2006, said the government agency.

But like the search market has shown, Chinese are not gravitating to Western brands online. They want to consume content in their own language made by their own people by and large. This native bias will continue to be a challenge for US-based Internet companies trying to penetrate China.

The New Bar Money: Amazon’s Associates Program

In mid-February, I joined Amazon.com’s Associates program, an affiliate marketing system that lets you receive referral fees for sellling Amazon products. Around the same time, I had bought a bunch of Google keywords. Google is a great marketing vehicle but it has one flaw: There was no way to track sales conversion, or the rate at which people who clicked on my Google text ads actually bought the product I was selling.

That’s what led me to Amazon Associates. I became a member of the program because it allowed me to track sales of my book by placing a bit of Amazon referral code on my blog. So after two months here are the results. I sold nine copies of Creative Capital and two other books, netting $13.13 in referral fees.

Clearly, it’s not enough to pay the rent but it is good enough for a few drinks at the bar. Another interesting point: The conversion rate is pretty high. Out of the 54 people who clicked on the link to my book on Amazon, 11 chose to make a purchase. That comes out to 20.37% conversion rate–an incredibly high rate. To me that shows the power of a blog. People who visit your blog are really motivated to make a purchase. See the report below from Amazon:

Earnings Report Totals
January 25, 2008 to April 25, 2008

Items Shipped Revenue Referral Fees
Total Amazon.com Items Shipped 10 $210.04 $12.17
Total Third Party Items Shipped 1 $16.00 $0.96
Total Items Shipped 11 $226.04 $13.13
Total Items Returned 0 $0.00 $0.00
Total Refunds 0 $0.00 $0.00
TOTAL REFERRAL FEES 11 $226.04 $13.13

HOW TO BUY CREATIVE CAPITAL: To pre-order Creative Capital and get a 34% discount, click here and go to Amazon