Facebook Dollars

I'm helping start a company that was trying to hire a real smart guy from Facebook and having some success until Microsoft mucked it up. Now the guy doesn't want to leave because his stock is worth millions.

It's the right move for the guy, but I was surprised to see how many people were taken in by Microsoft's valuation of 15 billion. Like Microsoft cares what the valuation is. They wanted to put in a 1/4 of a billion dollars to keep Google out. If all the Facebook wanted in return was a stupid high valuation why not? It's not like Microsoft is going to live or die on that valuation appreciating. Halo 4 will take care of that revenue swing in a couple of hours.

I told these compatriots what made the valuation actually seem real was that two New York hedge funds came in as well. While Microsoft is not worried about making money on their investments, hedge funds due tend to care. Except the investment turned out to be horse hockey. (I wonder now that this is a personal blog if I can stop coming up with euphemisms for swear words.) This is like Digg saying they are the sixth biggest sight on the internet. Even though it's not true, everyone will believe it from here on out.

The big question is not why would Microsoft make an investment at such a ridiculous valuation. That makes perfect sense. It's why did Facebook set the valuation so high? Talk about painting yourself in a corner. I'm all for momentum and buzz. It's the lifeblood of start-ups. But now, unless Facebook continues to perform at the stellar level they have for the last 18 months, they are at risk of not being able to do further funding. Unless they can convince the next round of investors or the public markets for an IPO they are worth $15 billion dollars, the next round will be a down round.

I don't care how big it is, no one likes a down round. Not the employees whose options are priced sky-high or the investors who have re-valued their ownership. The only ones who like it are the press and bloggers who will be like vultures when it turns out Facebook is ONLY worth 8 billion dollars.

I wonder if the OpenSocial announcement alone has made this a very real possibility for Facebook.

Disclaimer, I love Facebook. I wish I could junk Linked-In and just use facebook for my one stop business and social networking needs.