aloysius,

i took ESL classes in first grade. it worked well. a few months later, i was reading at a level that surpassed all of the second graders (with english as their first language) in my school.

you still haven't mentioned what language you want my posts translated into. please advise.

Do you really think a $500 million valuation is nearing a "~10 figure valuation"? This is actual, real money being invested dude. Those are 2 very, different, numbers!

However, I def concede to your overall point - venture shouldn't be looking at companies as high as $500 million valuation either, because, to the overall point I keep trying to make ITT: the homerun potential isn't quite there.

And well, lookee here... do we finally agree on something, stinkypete?

yes. on the log scale (ie. "the x figures scale"), $500M is much closer to $1B than $100M. and since were talking about a company whose value is very difficult to define (no revenue, still in its infancy) and potentially very volatile, $500M really isn't far off $1B. i think this was proven when instagram hit the $1B valuation the day after it was valued at $500M.

Yes, stinky - you're spot on. Sequoia will get their stake in Instagram returned to them all in FB equity at a 50% discount to FB's current valuation. And this will very possibly be worth 10x one day.

But I mean really - if you're going to just make up random numbers, why don't we say it's a 99.9% discount and Sequoia will get 100x+ on their Instagram exit? That's what I'm going to go with!

how hard is it to understand that they got ~$100M worth of facebook stock for a ~$50M investment, minus whatever adjustment is necessary for the cash part of the deal? the $1 billion purchase price may be made up based on some arbitrary valuation of facebook, but i'm not the one that made up these numbers.

lol. we're talking about it in the context of the potential for a 50x-100x return. and in this context, a $500M company is very similar to a $1B company. whether or not you think $500M is a lot of money isn't particularly relevant.

OK - but, uh, why would Sequoia get such a sweetheart deal? FB has never allowed Sequoia to invest in the company, and reputedly FB does not like Sequoia.

And most importantly, how would you be privy to the financial specifics of this deal? It is a private market transaction - absolutely none of the financial details of the Instagram transaction have been disclosed, nor will they ever be.

I know - I said above that we actually agree on this point!

See?

All anecdotal of course, but I was told (or maybe read on some tech site) that KPCB (an elite early-stage venture firm) got into FB very late at a 10-figure valuation. They felt pressure from their LPs because they weren't in the social space. Did I think that was a good idea? Without knowing the specifics, definitely did not think that was a good use of capital as that late a FB investment had no chance at hitting fund returning levels.

i can't tell if you're trolling at this point, but i guess i'll bite.

this is the sequence of events as i understand it. correct me if i'm wrong somewhere.


sequoia + other VCs bought 10% of instagram for $50M, valuing instagram at $500M.

facebook bought instagram for $1B in "cash and stock". hence, the VC funds now have $100M in cash and facebook stock, presumably mostly facebook stock.

the net result is that the VC funds obtained ~$100M in facebook stock for $50M in cash. ($100M-$50M)/$100M = 50%. hence the VCs effectively obtained facebook stock at a 50% discount.


you're saying none of the details have been disclosed, but i see this $1B figure everywhere. it it just something the media made up?

I'll stop you right here.

Why is it "presumably" mostly facebook stock?

FB stock >>>> cash at this point, you think FB's just going to give away equity, especially right before their IPO?

It could be all cash for Sequoia, and only the earlier round investors got the stock. It could be 99% cash, 1% FB stock for all the investors.

My point is that the terms of the stock/cash split are totally deal dependent, and we have no idea what those terms were.

So for you to assume that its 'very possible' that Sequoia will somehow turn their Instagram into 10x their investment is not founded in facts. It's just a random made up guess.

i just assumed a company with ~$1B net income that has filed to raise $5B cash in an IPO wouldn't have anything close to $1B in cash to throw around for acquisitions. i certainly could be wrong.

i also don't see why paying in cash rather than the somewhat illiquid FB stock is so preferable if the deal is struck at a fair valuation.

That's a fair point, stinkypete. I just quickly googled and FB (according to their S-1) had about $1.6 billion in cash/cash equivalents.

Let's say Sequoia got 100% FB stock. So, by getting a 2x return, Sequoia got FB stock at a 50% discount (to your original point).

FB is currently valued at $100 billion valuation.

So, for the Sequoia investment to "very likely achieve 10x" - what does the FB company valuation have to be?

And does that seem "very likely" to you?

i said "very possible", and yes, a $500B valuation for facebook in 5+ years is "very possible".

You're officially cracked out, bro. I can't believe I've engaged in a discussion with you, I feel so.. violated. I need to shower or something.

I just need to quote this post again to prove to myself that IRL, someone actually posted something this ******ed.

Al,

FWIW, a lot of the points stinky has been making in his latest posts are very similar to what lots of very good VCs w/ $100-300M funds say about the $500M+ megafunds.

Oh, you mean about investing in ~$500 million valuation companies like Instagram? I agreed with that. It's too hard to get homerun returns at investment valuations that high.

But I will say, I do disagree with stinkypete about FB very likely being worth $500 billion in 5 years. I am fairly sure most people disagree with that statement!

http://ycharts.com/rankings/market_cap

I mean, you know, just as a reference point...

aloysius,

it looks like we're hitting that language barrier again. you still haven't mentioned what your first language is. if you do i'll translate these for you, but i'll give you english language definitions for now:

pos·si·ble
1. Capable of happening, existing, or being true without contradicting proven facts, laws, or circumstances.

like·ly
1. Possessing or displaying the qualities or characteristics that make something probable

stink - I'm sorry, you can't really back off that statement above (but do appreciate the English language lesson). Although, maybe you need to look up the word "very", seems like you might not be completely in tune with the meaning.

You seem like the kind of guy that hates to lose an argument. And will say anything to try to win. I get it.

I'm sure you don't believe it's "very possible" Facebook will be worth $500 billion in 5+ years. No one can possibly be that ******ed.

let me clarify for you since there still seems to be confusion.

facebook hitting a $500B market cap is very possible within 5-7 years or whatever the end period was for your imaginary 2009 sequoia fund was.

facebook hitting a $500B market cap in this time period is not very likely.

i stand by these comments.

let's put it this way. if facebook increases their userbase by 50% and starts earning an average of $40 per active user per year, they'll almost definitely hit a $500B market cap. this seems within the realm of possibility to me.

keep trying bro, eventually you'll get to a place where what you're saying is "within the realm" of not being completely ******ed

Holy **** that's an amazing portfolio.

Yes it is, their Skype flip and Instagram seed funding especially, but a lot of those have also been later stage deals.

For instance (and all of these are "reportedly")

- airbnb was at a billion dollar valuation.
- groupon was at a $4.75B valuation
- zynga was over a billion

And then you have stuff like Marc was a very early investor in twitter, but as an Angel.