Privately-held Facebook Inc. may never realize the notorious $15 billion valuation
hammered out in its advertising-plus-equity deal with Microsoft Corp. [
MSFT] last year, but at least that eye-popping number is good for something: acquisition offers. The social network
reportedly offered microblogging service Twitter Inc. $500 million of its own inflated stock, based on the same valuation metric as its deal with Microsoft, in a buyout offer that Twitter has summarily
rejected.
The deal would have united two cornerstone Web 2.0 companies. Four-year-old Facebook has rapidly become one of the most trafficked properties on the Web, with 120 million users of its social networking platform. Twitter, on the other hand, is emblematic of the speculative 2.0 era, having built its user base to a reported 6 million without ever seeing a dime of revenue. Initially regarded as a chronicler of minutiae with which people could blog from their phones, Twitter has become a Web utility that threatens to
replace RSS feeds and
eclipse blogging.
For Twitter's stakeholders, the proposed deal may not have been all that sweet, compared to the startup's most recent valuation. If Facebook's
internal valuation is really closer to $4 or $5 billion, that'd peg the all-stock Twitter offer in the $150 million range, still a premium over the
reported $100 million valuation of its June 2008 venture round but not the huge multiple its investors may anticipate for such a popular, if yet pre-revenue, company. And since Facebook hasn't reached liquidity, Twitter's investors would not receive a cash payoff, but rather a speculative stake in a company whose true value is still unknown and fluctuating.
Stakeholders in Twitter include Union Square Ventures, Spark Capital, Digital Garage, Amazon.com Inc.'s [
AMZN] Jeff Bezos, Betaworks, Ron Conway and Chris Sacca. In addition to Microsoft, Facebook's investors include Accel Partners, Greylock, Meritech Capital Partners, Peter Thiel, the Founders Fund and Li Ka-Shing.
In the current economic climate, particularly in the online advertising arena where Twitter will eventually monetize its service, the company is still gambling that its value will continue to increase, despite its still-unproven model. Its name is virtually synonymous with microblogging, to the extent that any other comparable service is inevitably
compared to it. But the company faces competition from the more robust but less popular
Friendfeed Inc., not to mention Facebook's own "status update" function that's similar to Twittering.
Although the metrics on both sides could soon seem rather silly, the most important one may be this: Facebook is willing to offer one-thirtieth of its equity for a company that doesn't appear to add any crucial technology, just an addicted user base. That seems awfully high, no matter what Facebook is really worth -- now or next year.
UPDATE: We're hearing from people close to Twitter that the original story broken by AllThingsD's Kara Swisher is largely accurate, with long negotiations breaking down primarily due to the price of the proposed transaction. We've also heard that Facebook may have offered as much as $100 million in cash, with the remainder of the price in stock.
-- Paul BonanosSee June 2008 post from Tech Confidential about Twitter's last venture round
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