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Assignment 2:The Facebook Deal

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Introduction:

  • The past two modules have been a bit of a mash-up of different ideas and tools, which makes it difficult to ask you to perform a neat, simple task that covers all the material that we covered. Instead, we’re going to ask you to synthesize the bigger concepts from each of the past 4 lectures. We're going to do so using a company that most everyone is familiar with: Facebook.
  • Facebook, as everyone pretty much knows now, rocketed to popularity starting in 2005 and hasn’t looked back since. As you might expect from a highly-successful, capital intensive, high-tech operation that’s growing at blazing speeds, the company went through several rounds of financing to finance the business’s growth. We’re going to ask you to look at that financing and explain to us what was going on.
  • Though a savvy researcher could find these transactions herself via Google if she truly wanted to, we’ve gone ahead and pulled the big ones up for you in chronological order to save you some time. We encourage you to investigate each of these further, however. There’s no shortage of background on each of these. Here they are in nice news-bite capsules for digestion:
    • The Facebook group announced that it has raised between $10 million to $12 million in first round financing led by Accel Partners on April 15, 2005. As a part of the transaction, Jim Beyers, a Managing Partner at Accel Partners, joined the company's board. The post money valuation of the company was $100 million.
    • Facebook, Inc. announced that it has raised $27.5 million in its third round of funding led by new investor Greylock Partners on April 19, 2006. New investor MeriTech Capital Partners and existing investor Accel Partners invested in the transaction. The post money valuation of the company was $525 million.
    • Facebook, Inc. announced that it will raise $240 million in an equity round of funding from new investor Microsoft Corporation on October 24, 2007. As a result of the transaction, Microsoft Corporation will now hold 1.60% stake in the company. The round was raised at a post money valuation of $15,000 million.
    • Facebook, Inc. announced that it has raised $200 million in funding from Digital Sky Technologies Limited on May 26, 2009. Digital Sky Technologies Limited invested in preferred stock and acquired 1.96% stake, valuing the company at $10 billion.
  • So what was really happening here? What were the major events surrounding and shaping these investments? We want you to tell us the story of the business as it unfolded through these massive transactions.
  • In order to successfully complete this assignment, you’ll have to rely on your powers to navigate the world-wide web and your ability to work backwards a bit. The information is out there if you know how to look. Remember, until recently, this was a private company so we can’t easily verify estimates on these financial numbers. So, be sure to justify your thinking with plenty of evidence from similar businesses and events. Good luck!

Write a 3-4 page paper in which you:

  1. Describe the type of financing that was being used here and why it was being used.
  2. Speculate as to what the money was used for after each successive round of financing. (Don’t forget, Facebook was raising money to finance certain projects.)
  3. Provide an explanation behind the company’s bubbly corporate valuation during this time.
  4. Determine how outside investors were valuing this company. (Hint: look at similar businesses).
  5. Estimate the company’s major financial numbers (revenue and net income) based on the implied valuation of the most recent investment.



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    Finance

    Submitted by PROFSTAN on April 26th, 2016 15:28

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