Posts Tagged ‘Facebook’

Facebook Is Hunting for $100 Million

March 27, 2009

Hallelujah! The Facebook scoop I’ve been sitting on for days was just published last night on BusinessWeek’s Web site. Check out the top of the story here:

Facebook Is Hunting for More Money
The social-networking site wants as much as $100 million in debt financing, sources say. Facebook’s accelerating user growth carries huge tech costs

By Spencer E. Ante

Facebook, the fast-growing social-networking Web site, is one of the many companies looking for additional financing as banks and other lenders become increasingly careful about extending credit.

Over the past few weeks, Facebook has been trying to secure as much as $100 million in debt financing, according to two sources with knowledge of the proposed transaction. Specifically, the company is looking for a handful of credit lines that would help it finance leases for the growing number of computers it needs to run its popular Web site. Such leases are used by well-known companies, including Google’s (GOOG) YouTube video service, and are a common way to finance equipment purchases in Silicon Valley.

Facebook has been shopping for credit from a number of large financial institutions, including Bank of America (BAC). The Charlotte-based bank, already Facebook’s primary commercial bank, received $25 billion from the federal government as part of the effort to relieve the credit crisis. Facebook has not yet secured new debt financing from Bank of America or any other lender, according to the sources. It is continuing to try to line up credit lines for leases and is considering other forms of debt.

A Facebook spokesman says the effort is simply part of the normal course of business. Equipment leases offer lower up-front costs and certain other advantages over purchases. “Facebook always seeks to keep its costs of capital as low as possible, particularly in these uncertain economic times,” the company said in a statement issued to BusinessWeek. “Along with other Silicon Valley companies, we rely on a range of tools to do so, including equipment lease lines to acquire equipment.”

Read the rest of the story here.

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Facebook’s Thiel Explains Failed Twitter Takeover

March 2, 2009

This morning, BusinessWeek published my story confirming for the first time that Facebook made a serious offer for Twitter. I’ve also got some scoopy details on the negotiations and why they failed.

Facebook’s Thiel Explains Failed Twitter Takeover
The social network intends to grow during the downturn, but Facebook’s imprecise and illiquid stock valuation limited its appeal to Twitter

Facebook remains on the lookout for acquisitions after its failed attempt to buy microblogging site Twitter, one of the company’s directors and largest investors says. “We’re still focusing on growing as much as possible,” says Peter Thiel in an interview with BusinessWeek.

In Facebook’s first public confirmation of the talks, Thiel said the parties disagreed over price and structure when they seriously considered a deal last fall. “It became pretty clear it wasn’t going to happen,” Thiel says from the mid-Manhattan office of his hedge fund Clarium Capital. “The deal would have to be done with Facebook stock. And then you have to figure out how much the stock is worth.”

Determining Facebook’s true value is a matter of heated debate. Since Facebook is a private company, there is no liquid market for its stock. When Microsoft (MSFT) bought preferred stock in the company in 2007, it valued Facebook at $15 billion. Around the same time, Facebook placed an internal valuation of the company company’s shares of common stock at about $3.7 billion, according to court documents. The Palo Alto company relied on the appraisal to value employee stock options fairly and avert possible tax problems. But since then, the valuations of most private tech startups have fallen along with stock markets.

Facebook’s Risky Strategy

In November, the blog All Things Digital reported that Facebook was in talks to acquire the fast-growing micro-blogging service Twitter for $500 million, most of it in Facebook stock.

The attempt to buy Twitter fits with Facebook’s risky strategy of pursuing user growth and product innovation over profits. Facebook is hewing to that strategy at a time when many technology companies are slashing costs and announcing layoffs. “It will either turn out to be a great strategy or a terrible strategy,” Thiel says. Larry Yu, a spokesperson for Facebook, declined to comment on Twitter and the other aspects of this story.

If Facebook is to succeed in using its stock to buy companies, it will need to do a better job at persuading targets of its worth. A person close to Twitter with knowledge of the negotiations confirms that valuation was the primary problem. Twitter management also believed and continues to believe that Twitter has tremendous momentum and that its full potential isn’t close to being realized.

Twitter Wanted Open-Market Valuation
Representatives of Twitter liked the sound of $500 million but balked when Facebook said its stock was worth $8 billion to $9 billion. Twitter’s team knew that Facebook was letting employees sell stock on the secondary market at company valuations ranging from $2 billion to $4 billion. “We said it’s not worth it,” the person says. “Don’t treat us like children.”

At that point, Facebook offered Twitter around $100 million in cash, with the rest of the deal in stock. Facebook said it would come up with the $100 million by selling more of its stock to outside investors.

Twitter agreed on one condition: that the Facebook stock it received be valued at the price company shares garnered on the open market. Facebook blinked and the deal talks ended. “They wanted to buy us but there was not much conviction,” the person says.

Click here to read the rest of the story.

Venture Capital Funding Enters Deep Freeze

January 20, 2009

It’s official: The venture capital market is freezing up. And don’t expect the market to warm up any time soon.

In the fourth quarter of 2008, venture capitalists raised only $3.37 billion, down a staggering 71% from the year-ago quarter, when VCs raised $11.67 billion, according to a January 20 release by Thomson Reuters and the National Venture Capital Association. This is the smallest amount of money raised since the second quarter of 2004, when VCs raised $3.3 billion.

The size of the average fund and the number of funds able to scare up capital is also rapidly shrinking. In the fourth quarter, 43 funds accounted for that $3.37 billion, down from 84 funds in the year-ago period. That is the smallest amount of funds raised since the third quarter of 2003, when 33 funds raised $1.8 billion.

The shrinking amount of capital means that fewer new companies will get financing, and that older startups without market traction are likely to wither away.

“With some notable exceptions, we can expect this slower pace to continue well into 2009,” said Mark Heesen, president of the NVCA in the press release.

After years of waiting for an industry shakeout that never happened, many VCs now expect the industry to shrink significantly since some institutional investors are pulling back from the venture capital asset class. “There are likely to be fewer firms over the next few years,” says Ira Ehrenpreis, general partner with Technology Partners, a firm based in Palo Alto, CA. “And that’s a good thing. A pruned tree will be healthier.” Ehrenpreis believes the industry could shrink by as much as 20%.

Another silver lining: The largest and most successful VC firms continue to be able to raise large war chests. Two of the three largest funds raised in the fourth quarter were by Accel Partners, a well-established firm that has invested in Facebook, JBoss, MetroPCs and many other prominent startups.

Accel raised an Accel Growth Fund with $480 million to invest in more mature new companies. It also raised Accel London III with $525 million to invest in young European startups.

Were Digg and Web 2.0 Over-hyped?

December 19, 2008

If you haven’t read my story on Digg and the momentary decline of Web 2.0 companies then you should. It’s gotten a lot of pick-up and play today, with links from CNET’s Caroline McCarthy, Valleyag’s Owen Thomas, TechMeme, HipMojo.com, Venture Chronicles and other places.

Click here to read the story, which reveals Digg’s financials for the first time and also has solid sourcing for its valuation during its most recent round of venture financing.

I don’t think my story is the definitive statement on Web 2.0. It’s just an interesting snapshot in time. A few years from now, the Web 2.0 generation of companies may very well have ended up fulfilling their promise. But for now, those hopes look unfulfilled and a bit over-hyped.

What in the World is Going On with Facebook?

November 21, 2008

Check out my story on Facebook, called “Facebook’s Land Grab in the Face of a Downturn.” It’s about the startup’s audacious gamble to chase user growth in the middle of the worst economic crisis since the Great Depression.

In the story, I report several scoops:
– To grow its user base, the company has lowered its revenue goals. In January, founder and CEO Mark Zuckerberg said Facebook was shooting for revenues of $300 million to $350 million this year. But this spring, Zuckerberg and his board lowered the revenue target to $250 million to $300 million, say sources familiar with company finances.
– Despite intense speculation, the company is not running out of money. It has raised about $500 million and is “slightly cash-flow negative,” says Facebook director and investor Peter Thiel. At its current burn rate, he says, the company has enough cash for three or four years.
– The company is gearing up to do acquisitions, particularly of overseas foreign networks.
– The company is seriously considering a plan to take a cut of money from the software developers who create applications for the site. Vice-President Chamath Palihapitiya, disclosing the initiative for the first time, says the company may be able to help these startups generate more cash from advertising or e-commerce and then take a slice of that revenue.

Celebrity Sightings at the DNC

August 28, 2008

Yesterday, I checked out the TechNet party at Rioja on Larimer Street, just a few blocks away from the Pepsi Center. It was jam packed and drew an A-list crowd.

I walked in and was happy to see my old co-conspirator Jonah Seiger, who runs his own interactive political consulting firm Connections Media LLC. Jonah introduced me to Chad Hurley, the co-founder of YouTube. Then I met Facebook chief privacy officer Chris Kelly, and bumped into Newark Mayor Cory Booker, who I came to know by writing a story about his ambitious plans to fight crime with cutting edge technology.

My friend Patrick Ward, who founded and runs the Denver-based tech pr firm 104 West Partners, said he saw Charlize Theron at Elway’s steak house. “The whole restaurant turned and looked at her when she walked in,” said Patrick.

In the afternoon, while getting a tour of the Pepsi Center, I saw ABC’s Jeff Greenfield and CBS’s Bob Schieffer, who was very short. Outside the media tent, Jim Lehrer pulled up in his gold cart while I was smoking a cigarette.

And today my BusinessWeek colleagues said T. Boone Pickens made an appearance at the Big Tent, talking about his alternative energy plans. It’s the latest sign of the increasing power of bloggers, who are making a very strong showing at this convention. In many ways, one of the big stories of the convention is the rise of the blogger.

The Great Firewall of China

August 11, 2008

BusinessWeek’s Digital Dish gang considers the sale of equity in Facebook by insiders, and what it means not only for Facebook, but for other venture-capital-backed startups, as well as predicting that China’s tight grip on information will encounter resistance at the Summer Olympics.

Check out the video by clicking here.

For Sale: Facebook Stock

August 7, 2008

Today I wrote a story for BusinessWeek Online reporting that a growing number of Facebook employees have been selling their stock in the social networking phenom. The sales are happening at valuations far below the much-hyped $15 billion valuation Microsoft conferred on the company when it bought a slice of preferred stock last fall.

It’s been the most read story on our Web site all day. If you haven’t read it, click here.

One question for readers: Do you think it’s a good idea for startups to create programs that help employees to sell stock?

New June ComScore Numbers Shows Facebook Still Has the Mojo

July 15, 2008

I just got a first look at the June ComScore numbers for the top social networking Web sites in the U.S.

The big story is that Facebook saw a nice jump in unique visitors and it continues to grow faster than MySpace and the overall market.

In June, Facebook claimed 37.4 million unique visitors, up from 35.6 million in May. Year over year, Facebook saw its uniques rise 34%, up from 27.9 million last June. By contrast, the total number of Americans visiting social networking sites grew 6% over the previous June to 189.9 million. Meanwhile, MySpace only saw 3% annual growth in its visitors, rising to 72.8 million from 70.5 million.

Clearly, MySpace is still the leader in terms of the U.S. social networking audience. Even if Facebook continues to outpace MySpace at these growth rates, Rupert Murdoch’s prize acquisition is in no danger of losing its billing as the largest U.S. social network any time in the near future. Even so, Facebook clearly has the mojo, and continues to nip at it heels.

The engagement numbers are sort of a mixed bag. MySpace, Facebook, and Orkut are clearly grabbing the lion’s share of attention in the U.S. social networking space. In the second quarter, MySpace saw a nice jump of 15% to 677 minutes spent on the site compared to the year-ago quarter. However, engagement dropped 2% compared to the first three months. As for Facebook, the average minutes per visitor fell 8% in the second quarter to 527 minutes, compared to the year-ago quarter. However, engagement increased 5% over the first quarter of 2008. Bottom line: people continue to spend a lot of their time on these sites.

I asked ComScore senior manager Andrew Lipsman what he made of Facebook’s gains. He said it’s hard to pinpoint exactly, but it’s probably a seasonal bump enjoyed by leisure-type Web sites. “Leisure–oriented sites (gaming, social networking) sometimes have a tendency to see seasonal gains in the summer when people have more leisure time,” wrote the 28-year-old Lipsman. “Anecdotally, it does seem as though my contemporaries have very recently been flooding onto the site. I wonder if there is any increased word-of-mouth effect due to people being out more during the summer? Just a guess, but I suppose it’s possible.”

I have to agree with him on the second point. Since joining Facebook more than a year ago, I have seen a steady increase in my friends. But over the last few months, my friend requests have seemed to spike. I’m getting a lot of friend requests from old high school friends I haven’t spoken to or seen in many years.

This seems to show that Facebook is following the traditional adoption curve. The innovators and early adopter crowd have already joined the party. Now, Facebook seems to be attracting the early majority crowd—the folks who are not the first on the block with the slick new gadget but over time they tend to come around and adopt whatever the early adopters deem cool or useful.

Final notes: Among the other top social networking sites, LinkedIn and Orkut are seeing the highest growth rates. LinkedIn more than doubled its U.S. audience, hitting 4.1 million users in June, up from 1.7 million the previous June. And Orkut, Google’s social networking play, also doubled in size, reaching 1.2 million users, up from 588 million the previous June.

Big Loss: Matt Cohler Leaves Facebook

June 19, 2008

Today, Facebook announced Matt Cohler was leaving the company to become a general partner at Benchmark Capital. A long-time Facebook exec who was part of Mark Zuckerberg’s brain trust, Cohler was vice president of product management, and his presence will be sorely missed.

Jim Breyer, an investor and director at Facebook, has told me several times that he thinks the world of Cohler. “Cohler is a rock star,” Breyer told me several months ago. “He is one to watch.”

Kara Swisher reports that Cohler was not pushed out, and I have to believe that is true. That Cohler will remain a “special advisor” to Zuckerberg and the company’s management after he leaves is pretty good proof that this is an amicable separation. Cohler, a really smart, cool and nice guy, was very popular at Facebook, and always seemed to know his role as Mark’s consigliere and didn’t step over those bounds (unlike some other execs). When I asked him a few months ago what advice he gives Zuck, Cohler wisely replied: “I ask him questions and that elicits things.” A guy with a golden touch, Cohler will be a great asset at Benchmark, helping them suss out Internet investments.

Cohler joined Facebook in the summer of 2005 at Peter Thiel’s request. Here’s an excerpt from an interview I did with Matt from June 2007 when he spoke about how he joined Facebook. It shows you the tightness of the Silicon Valley network. He was an exec at LinkedIn at the time but felt that Facebook was a “once-in-a-lifetime opportunity” that could not be passed up.

“In August 2004, Mark came in to meet with Peter Thiel, Reid’s old boss, to raise some angel money to keep the company expanding quickly,” Matt told me. “Reid and I were in Peter’s office an hour before. Peter said sit in and listen to this Mark Zuckerberg guy. I sat in on the conversation. Right away I was floored by what I was hearing. The quantitative data that Mark was getting, about the user uptake. I started tracking the company. Peter invested in September of 2004 and became a director. A few months later, Peter asked me to join Facebook. I felt it was a once-in-a-lifetime opportunity. I officially joined in spring of 2005. There were 5/6 employees.”

One key question now is this: Who will take over product management when Matt leaves in the fall? Product management is still arguably the most important job at Facebook. It will be interesting to see if Mark Zuckerberg takes it over, or if he appoints someone else from inside the company. It’s hard to see Facebook bringing in an outsider to take over product development at this point, given its importance and the uniqueness of the company’s culture.