The big news for this week in the Valley is the Microsoft equity stake in Facebook announced yesterday. Everyone's reaction so far has been "cool!" I have to admit. It is pretty cool. This news is exciting but really tickles me for a number of reasons.
Firstly, Microsoft rarely takes an equity stake in a company except in strategic areas or special circumstances. Equity investment is the exception and not the rule. I can think only of the IP Venture spin-off companies as examples where equity is in exchange for the use of Microsoft research IP. So exceptions are definitely interesting to study.
Secondly, the valuation blew my mind. At $240M for 1.6% of the company, Facebook's valuation is now $15B. This is up from speculation of $3B only last year. That sure is a lot of money. I have to admit that I questioned the huge valuation for Facebook even when people were talking $7-10B.
Thirdly, how wrong we all sometimes are! I remember reading a paidcontent.org article about Facebook in June of 2006 after the announcement of the Interpublic deal with them. Interpublic group basically took 0.5% of Facebook in exchange for $10M in ad revenue. That deal seems like a bargain today but at the time, I think the paidcontent.org commentary was that it smacked of FB desperation and that the social network was trying to fake a $2B valuation. Times do change and sometimes it's so hard to be psychic.
Lastly, I have to admit that it's a little weird for me to hear the word Facebook everywhere in the Valley since I'd like to remind everyone that it is the namesake of the Harvard freshman registry. At Harvard, also Mark Zuckerberg's alma mater, students obsessively flip through to find cute classmates (ahem, so I've been told). But that said, Facebook has taken that concept to pretty impressive places. The Facebook platform, which I blogged about after the F8 hackathon, was a stroke of genius. One VC told me he thought that move was worthy of Google's Larry Page and he didn't see it coming from Mark Zuckerberg. But it did come from Mark so bravo for Mark! And bravo to Microsoft for a cool deal.
