What Return Will Facebook’s New Investors Get?
Wow! If the rumours are true, not only has Microsoft bought a small stake in Facebook at $15B valuation, but so have at least a couple of non-corporate investors. It’ll be interesting to see what kind of a return this latest group of investors get from Facebook, because the only way to get anything close to a $15B valuation today is to:
1) Assume Facebook’s massive and rapid growth will continue (which it might not)
2) Assume there’s a rapid path to massively better monetization of Facebook’s users than there is now (which there might not be).
I have to say - neither of these two seem like slam dunks to me… In no way does this latest round of financing set a floor for a public valuation of Facebook; and there are major risks in IPO’ing at an inflated valuation. Hopefully, for Facebook, this new tranch of cash will enable the company to rapidly achieve annual profits (not revenue) of $300M, so as to justify the current high valuation; and, soon after, profits way in excess of that (say $1B), so as to actually provide a return for investors.
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