Posts Tagged ‘Peter Thiel’

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.

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.

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.

How Much Money Has Facebook Raised?

May 10, 2008

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.