Another $500 Million for Facebook? OK, This Is Getting Ridiculous

Posted by: Rob Hof on October 25, 2007

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And I don’t mean ridiculous for Facebook, which might as well take any money that’s green. But I can’t understand why two hedge funds would invest an additional $500 million in Facebook, on top of Microsoft’s $240 million announced yesterday, as Elizabeth Corcoran reports on a Forbes blog. Microsoft gets multiple strategic benefits from its investment, as I wrote yesterday. But how on Earth can any self-respecting hedge fund expect to get a reasonably near-term return on a $15 billion valuation on a company with an expected $150 million in sales this year? For all of Facebook’s evident momentum and utility, a $15 billion exit via acquisition or initial public stock offering is iffy enough at this point. To get a return, the funds would have to see that valuation rise significantly higher than that, right? Sorry, I don’t get it. Neither do a lot of other people. Of course, Facebook hasn’t announced this additional funding yet, so we’ll have to see if it actually happens.

Update: Larry Aragon at Private Equity Hub says the report about the hedge funds may not be true. If so… never mind.

Reader Comments

PXLated

October 25, 2007 7:28 PM

Boy!
Let's put this in perspective...Microsoft invested $150M in Apple and $200M in BestBy back in 2000 (that bought an exclusive to push MSM, they outbid AOL). Here we are in 2007 and Microsoft invests a paltry $240M in Facebook and everyone goes nuts. Take inflation into account and what's that investment in todays dollars...peanuts.

Rob Hof

October 25, 2007 11:47 PM

PXLated, I don't mean the money itself is ridiculous--as I said, it's pocket change for Microsoft, which gets a number of strategic benefits for its relative pittance. It's that hedge funds, or anyone without a strategic imperative for a piece of Facebook, would invest at a $15 billion valuation today.

Brandon J. Mendelson

October 28, 2007 10:31 AM

Bubble 2.0. I don't understand how anyone finds these social networking sites to be worth any money. They all eventually flatten out in terms of growth and revenue, look at My Space.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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