Wallen's

Friendfeed is overvalued ?

By now everybody knows about the Friendfeed acquisition by Facebook. The news came out in TechCrunch. Since then a lot has been said and lot more will be said about this deal (for the most interesting articles on the topic, you can click on the pearl at the end of this post)

I'll just focus on the valuation aspect.

$50m for roughly 1m users that makes a multiple of... $50 per user. For Friendfeed service itself, that is very high considering 1) that Friendfeed has been flat in user growth for the past 6 months and 2) that Friendfeed is not a market leader in its space. In a previous post on Facebook valuation, I had done a small benchmarking showing that user valuation multiples for social networks ranged from $25 to 40. Facebook valuation multiple at the time was at $50 per user.  Since then, Facebook valuation multiple went down to rougly $25 per user ($6.5bn total valuation mentioned in the various FF-FB posts and 250m users). In other words, Facebook is paying a higher multiple for Friendfeed than their own...Strange.

Of course, I know that everybody says that the rationale for the deal is not the service and its users  but the team. But with that same amount of money, couldn't you put together a "star-tech-team" paid at huge salaries ? To put this in perspective, let's say the 14 Friendfeed engineers stay on average 3-4 years with FB, that would make an average salary of $ 900k-1'200k per year per engineer... Unless I miss a major point, that's enough to attract tech-stars, no?

  

$10bn - Is Facebook overvalued?

RWW’s article on FB’s new financing round shows a valuation of USD 10bn for Facebook. This puts it at a multiple of USD 50 per user (assuming 200m active users, the last figure I heard off). This figure compares to recent (and not so recent) multiples:

• Twitter (February 2009 series C) :  ~40$ per user (or ~75$ per active user with a different number crunching but not comparable to the other figures below)
• Xing (March 2009 market capitalization) : ~25$ per user
• LinkedIn (June 2008 series D): $ ~40 per user
• Beboo (March 2008 trade sale to AOL-TW): $ ~40 per user
• YouTube (2006 trade sale to Google): $ ~30 per user
• My Space (2005 trade sale to Newscorp): $ ~35 per user

These multiples are pretty stable across transactions and over time in the range of $30 to $40 per user. Demographics and geographics user mix differences should translate into multiple's differences as pointed out in TechCrunch’s post on the topic. In this light, Facebook’s valuation seems on the high range but not completely out of order compared to those benchmark multiples, especially knowing that it’s the market leader and the past months impressive growth.

 The question is whether these multiples make sense or not from an “operational ” perspective. Mark MacLeod had made some back of the envelop calculation here on Twitter and triggered an interesting discussion. On the other hand as long as there is a market for it…

2007 Web start-up funding (2/2): Investment size and implied valuation

I said in my last post that I would make a series of 3-4 posts before year end on 2007 Web start-up funding from CrunchBase database. Well... time flies, so that's the second (and last) post of this series. It focuses on Web start-up exclusively on investment size by stage and rough estimates of implied valuation.

Web investment size

Series A, B and C & above represented in 2007 respectively 55%, 31% and 14% in terms of number of investments and 36%, 33% and 31% in dollar terms. In 2007, the median round size was $~4m for series A, $~10m for series B, $~15m for series C & above. These figures are similar to the 2004-2008 figures which is normal given the 2007-2008 bias in CrunchBase. 

There is still a large variance. For example, there is a ratio of 3.2 between first and third quartile  series A ($2.1m vs. $ 6.5) with 10th percentile investment size going up to $10.5m. Series B and C & above have a lower variance (ratio of 2.3 and 2.5 between quartile 1 and 3). Series B remained in the range of $6-15m and series C $10-25m.

  

Implied Web pre-money valuation

By doing some assumptions (series A tend to go for 25-50% of capital, series B for 20-30%, series C & above for 10-20%), we can infer some rough estimates of pre-money valuations that should be directionally correct for 2007. The figures are summarized in the table below.

Series A median pre-money valuation is around $8m and the average around $12m. Series B estimates are around $30-35m and series C & above are around $95-115m. However, these figures are just indications not a recipe to follow. For example, top series A pre-money valuation can be >$~20m (10th percentile).

 

 

It would be interesting to compare these 2007 figures to 2008 ones. I'll try in the coming month to repeat this series for 2008 Web start-up funding.