Dec 12, 2012 VC
Part 1 A Vc Firm Makes Money Accel And Facebook Case
Background information:
Accel Partners is a private equity and venture capital firm. It invests in many industries such as Computing, Consumer Internet, Engergy, etc (there are 11 industries).
Increadibly, Accel has invested in 197 companies (I did not count one by one ;) but I use a smarter way to count). It is based in Palo Alto, Californa and it also has in London, China and India. It was created on 1984 and there are some famous companies invested by them, Real Networks, Facebook, Veritas, Comscore, BitTorrent and Macromedia (the creator of Dreamweaver, Flash, etc.)
Also incredibly, Accel was able to raise almost 1 billing of dollar at the end of 2008, when the Global economic downturn started.
Facebook is a social network website. Basically, it is a virtual place where people communicate and share their lives in an easy way. It was created by Mark Zuckerberg and his classmates in Harvard University in 2003.
You can read more about Facebook here.
Now we are ready to visualize how a VC firm can make money (I will need to write more than a post for this, be ready).
If you read from the Wikipedia page at the Financials section, you read that:
“Facebook received its first investment of US$500,000 in June 2004 from PayPal co-founder Peter Thiel.25 This was followed a year later by $12.7 million in venture capital from Accel Partners, and then $27.5 million more from Greylock Partners.2526 A leaked cash flow statement showed that during the 2005 fiscal year, Facebook had a net loss of $3.63 million.”
We are not going to focus on the net loss this time. I may discuss this later posts.
Searching a little bit the Internet, we get:
“Among venture capitalists it’s a poorly kept secret that Facebook’s valuation came in just shy of $100 million. Assuming that’s true (Mr. Breyer declined to say), Accel paid a little more than $12 million for roughly a 15 percent share.”
Chim’s comment: I added some other paragraph just to give you a glimpse of what was being discussed there. You can click the paragraph to the news directly.
As you can see, Accel paid, very probably (you can see from the last post that this is almost exactly what Accel had with the Microsoft valuation), $ 12M for 15% of Facebook that time.
"And back in 2006, social-network valuations sky-rocketed accordingly.
There was the $800 million acquisition offer from Yahoo that Facebook reportedly rejected, the $2 billion Facebook wanted and the $25 million in venture capital Facebook got from Greylock Partners in April. In September, RBC Capital markets analyst Jordan Rohan said MySpace might be worth $15 billion in three years. The same month, Google bought video-sharing site YouTube, with is social features such as profiles and friends lists, for $1.6 billion."
Chim’s comment: Something is impressive here. Big companies, such as Yahoo!, were buying social networks for about $500 – $800 million at that time. This means that the value of social network sites were in this range price. One very interesting thing is the Jordan’s (from RBC Capital) comments “MySpace might be worth $ 15 billion in three years”. He missed, it was Facebook that was going to be valued at $ 15 billing in less than 3 years.
"It has never been our intention to sell the company, said Melanie Deitch, Facebook’s director of marketing, adding that the latest funding puts the rumors of such a sale to rest. Late last month, Business Week reported the company had turned down a buyout offer for $750 million and was looking for as much as $2 billion, citing analysts saying that Viacom, owner of MTV, might make a good match.
David Sze, the venture capitalist who led the investment for Greylock, said earlier statistics from comScore showing a decline in unique visitors in February were an aberration, and that the company’s internal statistics show continued robust growth. Indeed, the March statistics showed resumed growth on this metric too."
Chim’s comment: As you can think, big companies were trying to buy Facebook for $750 M range. The second paragraph is interesting about the statistics from comScore. It is not the first time that comScore misreport numbers about visitors for a site. Sometimes, misleading news are spread to push negotiation… not in this case, I guess.
“Venture capital funding provided by Greylock Partners and other firms totaling $25 million placed a value of $525 million on Facebook, which reportedly turned down $750 million from Viacom.”
Chim’s comment: What I really want you to focus is the first paragraph. Greylock Partners and other firms valued the company at $525 million! This number is important to establish the pre-money and post-money valuation. With this info, we are able to estimate the approximate percentage of the company’s equity being sold.
“New York-based News Corp., whose far-flung media properties include Fox Broadcasting and 20th Century Fox, spent $3.5 million for an undisclosed stake in Mountain View, Calif.-based SimplyHired. It bought MySpace.com last year for $580 million.”
Chim’s comment: So, on 2005, Fox bought MySpace for $580 million. Again, this reinforce the probable value range ($400M – $800 M) of a famous social network site.
At the end, we see that Peter Thiel got XXXX % (I can’t find the info, but this does not matter in our discussion of how a VC firm makes money rfom now) of Facebook with US$ 500,000 in June 2004, Accel Partners invested $ 12.7 million for 15 % (let’s say that New York Times is right) and Greylock Partners invested $27.5 million for XXXXX %.
Tomorrow, I will post the calculation of what is the percentage that Greylock Partners got with $ 27.5 million.
83 impressions on this page.
QR Code for This Page
Scan for mobile version!
Comments (0)