“Used, abused without clues
I refused to blow a fuse
They even had it on the news
Don’t believe the hype…”
Public Enemy, Don’t Believe The Hype
Raise your hand if you really believe that Facebook is really valued at $15 billion! Sorry but I don’t.
Here’s what I believe: Microsoft paid $240 million for the right to expand its pre-existing relationship as exclusive third-party representative for advertising on Facebook and the right to block Google out.
For that privilege, which now includes a global agreement instead of the US only, I think Microsoft got a bargain.
Why do I care and more importantly, why should you care? Because when you got out and raise capital for your Web 2.0 startup, don’t get ahead of yourself when talking valuation. It’ll destroy your company and your share value before you can say BUST.
Just another friendly reminder from your pals at Startup Houston.
Peace out!
P.S. In after hours trading in Microsoft today, after they announced a 23% increase in profits primarily due to Vista sales, Microsoft’s market cap grew by over $30 billion. $240 million doesn’t seem like a lot of money anymore, does it?
UPDATE: Nick Carr has a great diatribe about this on his site…I particularly love the link the the mental anchor piece. Great stuff, Nick.
you bring up a good point… I remember when Microsoft invested a small sum of money in WebMD as a capital investment. Elsewhere in the company, WebMD signed a contract with Microsoft for online advertising for a sum greater than the capital investment. It was legal at the time, but it is now not allowed. My MBA professor called it a “boomerang” deal. IOW, there are times (and maybe this investement in Facebook is one of them) where simply calculating a market value of an investment based on the capital invested is plain wrong. The true valuation will come when the next unaffiliated investment is made.
Hype - a term derived from hyper or some say hyperbole - meaning to promote or inflate. What is most interesting to me is the factor it has applied to the valuation. Here we have a company which was rumored to be negotiating a $3 billion deal and within a month is now talking about $15 billion.
This hype thing seems to be a very powerful multiplier and should be closely examined. One of the wonderful presentations I have seen addressing this topic is given by Kevin Hale, “Ten Ways to Run a Startup Like Genghis Khan.” http://particletree.com/web2expo/gk.pdf
I demonstrates how Kevin has used hype and other tactics to successfully launch his businesses.