Posts Tagged ‘Silicon Alley Insider’

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

May 10, 2008

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.

Shattered Links: Why Web Journalism Will Only Get More Powerful

March 30, 2008

When I look around and connect the online dots, it seems to me that the last month has been a sort of tipping point for Web journalism. Web sites have broken two major stories and have received big-time awards that they have never received before. Consider the facts:

1. Blogs Dominated the Microsoft-Yahoo! merger news: Somehow news of the Micro-hoo merger did not leak out to the Wall Street Journal or New York Times. But after Microsoft announced its hostile offer for the beleaugered Silicon Valley darling, blogs dominated news coverage of the year’s biggest merger story.

In particular, TechCrunch and Silicon Alley Insider broke a lot of the post-announcement scooplets. As a tech journalist, I found myself being forced to check both of these sites every day, no, every few hours, to track the fluid flow of events. On the day the deal was announced, SAI published eight posts alone, including Steve Ballmer’s letter to Jerry Yang and the Yahoo! board.

2. On February 19, blogger Joshua Micah Marshall, editor and publisher of the widely read political blog, Talking Points Memo, won the Polk Award for Legal Reporting. This is the first time that a blogger has won a major journalism award to my knowledge.

Here’s what the citation said: Marshall “led the news media in coverage of the politically motivated dismissals of United States attorneys across the country. Noting a similarity between firings in Arkansas and California, Marshall and his staff (with his staff reporter-bloggers Paul Kiel and Justin Rood) connected the dots and found a pattern of federal prosecutors being forced from office for failing to do the Bush Administration’s bidding. Marshall’s tenacious investigative reporting sparked interest by the traditional news media and led to the resignation of Attorney General Alberto Gonzales.”

3. On March 26, The Smoking Gun blew the lid off the Los Angeles Times online report that a 1994 assault on Tupac Shakur was carried out by associates of Sean “Diddy” Combs, and that P. Diddy knew about it in advance. The Smoking Gun has debunked other false reports before. Most notably, it showed that James Frey made up most of this best-selling memoir A Million Little Pieces. But this is the first time that a Web site has took down a high-profile story of a major newspaper operation.

The Smoking Gun reported that the Times story, which was published on the Web, was “based largely on fabricated FBI reports” and that the paper “appears to have been hoaxed by an imprisoned con man and accomplished document forger [and] … an audacious swindler.” After launching an investigation, the LA Times retracted the story and issued an apology.

“We published this story with the sincere belief that the documents were genuine, but our good intentions are beside the point,” said LAT editor Russ Stanton in a statement. “The bottom line is that the documents we relied on should not have been used. We apologize both to our readers and to those referenced in the documents and, as a result, in the story. We are continuing to investigate this matter and will fulfill our journalistic responsibility for critical self-examination.”

Chuck Philips, the Pulitzer-Prize winning reporter who wrote the story, said that he was convinced that the documents were fake after an extensive examination by The Smoking Gun. “I failed to do my job,” he said, according to the paper. “I’m sorry.”

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So what are the lessons here:

1. The Web is excelling at multiple forms of new journalism: From breaking news and analysis to hardcore investigative reporting, the Web is proving to be a powerful and diverse source of news and information.

2. The impact of Web journalism is growing: As more and more people get information from the Web, and as more journalistic talent flows to the Web (and it is, just look around), it’s ability to set the agenda or change the conversation will only grow.

3. Web journalists can move faster: When news of the Microsoft-Yahoo! deal was announced, tech blogs shifted into overdrive, pouring a lot of their resources into the story. By contrast, mainstream media journalists still had to balance their desire to get scoops with other deadlines and responsibilities. Truth is, for most print journalists, the Web is still a side project–not the main focus of their jobs or the way that people get ahead. TechCrunch’s Erick Schonfeld wrote about this issue in a post today.

But the point of this post is that THIS MINDSET HAS TO CHANGE in order for old media to survive. Print journalists who are being asked to devote more and more of their time online need to be supported and rewarded for making that shift. Otherwise, the online mantra being chanted at most print publications will never be taken seriously–and old media will never succeed in the Digital Age.

On that note, I am happy to report that on the TechMeme leaderboard, a list measuring the sources most frequently posted to tech news aggregator Techmeme, BusinessWeek (#51) ranks higher than its two main rivals, Fortune (#68) and Forbes (#84). However, we are way behind the Wall Street Journal (#15).

Who is number one? TechCrunch, of course.

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