Yesterday, I was in the Startup Camp 6 Montreal and it was an amazing experience to meet with highly motivated people in the Montreal’s community. It makes entrepreneurship to be highly contagious!

Kwedit is a strange name for a payment company. This is a startup that offers a new form of payment to social and interactive games that allows people to buy virtual goods. The strange thing is that it allows people to “promise” to pay for a virtual good and the user can pay the promise later with a bar code in a 7eleven store.

Even though this seems to be a great innovation, the idea of printing a bar code and pay it in a retail store is nothing new to date. The strong differentiator of Kwedit is the idea of promising to pay later. I wonder what would happen if everybody promises to pay but none of the actually pays anything. I believe that the CFO of the company would be scare of the increase in the account payable of the balance sheet.

This type of payment for virtual goods reminded me of Habbo Hotel. Habbo is a Finnish company that started its virtual goods operations before the internet boom. It is probably the first company to have a business model based on selling virtual goodies to users. Interesting enough, Habbo targeted in a very narrow market segment. Its targets on teenagers that love to chat in pixel-lated environment.

Habbo and its many forms of payments.

Habbo offers 7eleven payments too. OK, they sell pre-paid cards and Kwedit doesn’t.

In my humble opinion, Sulake could have grown much more if it had focused on the virtual good market as a whole market instead of just that niche teenager segment. It could have created a strategic plan of reaching all types of games and services based on virtual goods. Well, other companies grew upon this model and they are newer than Habbo. C’est tant pis.

http://sprouter.com/

Sprouter is a social network that connects entrepreneurs around the world. It is one of those website for grass-rooting campaigns for entrepreneurs to share their ideas. I’m not sure if that’s effective given that there are many social network dedicated to the same thing.

http://tinychat.com/

Tinychat provides free video and audio chatroom for the mass. People can use this tool as a DJ room, virtual meeting presentation room or live interactive TV. I like this website because it’s free and for startups, this tool can connect our team member even if they are in different parts of the world. I think this is a Webex competitor only that Webex is focused on corporate customers and Tinychat is focused on the consumer customers.

If this service catches on, it would be a great acquisition target for big companies like Cisco, Google, Microsoft and even Yahoo. I believe that with the adoption of higher speed internet network and the integration of video and audio into gadgets, the reality is that people will prefer to use video and audio to communicate rather than writing, SMS or IM.

Zynga is the company responsible for all those spam like games, such as FarmVille or MafiaWars. All these games are targeted to Facebook and they make money by showing advertisements. All these social type of games target the very basic human emotion of achievement. Most people play these games because they want to receive a higher status or position in their character or their skill level. In Facebook, players can show off their “new virtual and acquired ability” and get recognition from friends and other players. This is a big driver for the success of these games.

Zynga

I wonder why Facebook doesn’t merger or buy these game companies. It is part of Facebook anyway. It should acquire and get the game revenue. Currently, game companies can show ads from AdSense or any other place. Facebook loses ads revenue because of this.

The impressive thing is that the company is receiving more $180 million. I wonder what they are going to use that money for.

More at http://www.businessinsider.com/zynga-takes-180-million-venture-round-from-dst-others-cue-russian-mafia-jokes-2009-12

Thanks Googlers!

Last Friday (July 17th) was my last at Google as a AdWords Product Specialist in Brazil. It was a fun, growing, interesting, deep, challenging and awesome experience.

As a Google fan, I was lucky enough to work in the product development, engineering, marketing, project management, education, training and sales sides of this great company. I was able to see the wholeness of how this behemoth company works and the more I knew the company, the more I admired Google.

Besides that, I admired Googlers the most. Googlers are extremely smart, intelligent and nice to work with. They do have a really high standards about any kind of work. That environment challenged me to do my best and to grow even more.

It was sad my last day, but I believe I will see my coworkers from Google someday again.

Now, I’m focus on my MBA in Canada.

Some of my Google experience left on the Internet:

Novos Recursos do Google Analytics (in Portuguese only)
Google University – AdWords Além da Busca? – SMX Sao Paulo
Google Developer Days 2007

Math is not as complex as it looks

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.”

So, today I will show how we can estimate the percentage of equity that Greylock had after investing $ 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.

So, we have $ 525 million of post-money and the new money is US$ 27.5 M.

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!

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.

Read more at its website

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.[25][26] 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:

From New York Time, Facebook and Venture Capital Firms

“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.

Venture Beat - Facebook and VC firms

“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.

WebProNews - Facebook and VC firms

“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.

Seattlepi.com - Facebook and VC firms

“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.

Ning

Ning is a kind of more evoled Yahoo or Google groups. It says that it is a new way to build your own social network site, but I see it as a normal discussion group with up-to-date web 2.0 resources and tools.