Mark Zuckerberg was doing his best today to disclaim any interest in the $10bn headline valuation that Russian investment group DST has just put on his company. But the headline numbers have certainly been of great interest to Facebook over the years, and this one is too: it appears in the first line of the news release announcing the deal.
What exactly does that $10bn figure mean, though? One thing’s clear: it isn’t the valuation Facebook employees or other early investors will see when they get a chance to sell some of their stock this summer.
A couple of years ago early investor and director Peter Thiel told us (and others) that he thought the company was worth at least $8bn. That was controversial at the time given the early stage of the business, but Thiel, never one to duck controversy, was adamant. So when a Microsoft investment put a $15bn valuation on Facebook it appeared to vindicate his claims and became a milestone in Facebook’s emergence as a power on the internet.
Today’s investment from DST in the company’s preferred stock is on essentially the same terms as those made by Microsoft and other investors, a company representative tells us.
But a company’s true valuation is reflected in its common stock, not its preferred shares. As the name suggests, the prefs these have superior rights, and those command a premium. How much of a premium, though, is anyone’s guess, since terms of the investment were not disclosed. When we asked a Facebook representative, this is what we were told:
Preferred stock ranks higher than common stock in the financing structure of a company, as you know. It also has privileges like preferred dividend and liquidation preferences that are superior to common stock.
One other consideration to bear in mind when considering that $10bn: a strategic stake also commands a premium, which would have further inflated the headline number.
DST is now putting together a separate $100m offer that it will make direct to holders of Facebook common stock. With an IPO still apparently some way off, this will at least give them some short-term liquidity. But as Zuckerberg conceded, they will have to accept a lower figure.
