Dec 12, 2012 VC
Part 2 A Vc Firm Makes Money Accel And Facebook Case

Remember from the last post:

"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."

US$ 27.5 million is Y% of the post-money valuation.

The post-money valuation was given from this news:

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.

This means that Greylock got probably in exchange of 19% of Facebook.

Now, let’s see what is the pre-money valuation!

As you can remember, the pre-money + new money is post-money.

Pre-money (what Peter, Accel, founders, management, employees and other not-known investors) + $ 27.5M = $ 525 M

So, the pre-money valuation was at that time: $ 497.5 million, almost half a billion!

In the next post, I will tell you about the differences of Round A, B, etc rounds of investment. A startup usually receives more than one round of investment and that can affect the number of shares a VC needs to have. I will keep the explanations simple and in case I need to explain more, I will create more posts!

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