Jan 11

Let the Consolidations Begin

imgresA couple years ago I wrote a paper on the security space and why I felt it was a good spot for VC. I’m going to try to start to track the buyout and see if that thesis is panning out. (I’m also going to have to find a way to watch for the companies that die.)

This week we have two companies at the far ends of the acquisition spectrum.

Dell has acquired SecureWorks.

Though terms of the deal have not been released I’ve heard rumors that the price is between 500 & 550M. With funding of 31.5M if we assume they have 30% of the company then that should be a good return for the investors 5x-6x. Of course, the investors may have a greater piece of the pie, but this is just a back of the napkin guess.

SecureWorks has been around since 1999 and appears they took funding in 2000. So 5x over 10 years isn’t great, but it is still a win.

SourceFire buys Immunet

SourceFire paid 21M for Immunet on Wednesday in a cash deal. 17M up front and 4M of earn outs. I know these guys well, so I’m pretty familiar with their fundraising efforts. They took 2M in capital, and it is likely that that investors got around a 3x in just over a year. Pretty good numbers, especially for a smaller fund where they don’t need to return 500M+ to LPs.

These companies are vastly different. A 11 year old company that almost IPO’d and a 2 year old company that was bought after just one round of funding. Investors in both will likely be pretty happy though.

Jan 11

FB: Take the Money and Run

Tyler Shields (@txs), an old friend and colleague,  asked me the following:

I know you have some education and experience in the business world so I was curious what your thoughts were on something. I was debating with some folks about the Facebook valuation and what the results of this Goldman’s Sachs back channel IPO is going to be. If you had the chance would you throw money into the pile or would you wait and hold? Also do you think they are overvalued or fairly valued at approx 50B$?

So I first took this to mean would he invest if he had access to GS, then I figured maybe he meant would you dump if you were an FB employee. So I have both answers.

Let’s start with value. (Since that will inform whether you want to put money in.)

Some context-

  • Google is worth 200B.
  • AOL is worth 2.5B
  • Yahoo is worth 21B

Now everyone who has bet against high FB valuations in the past has been wrong. And I can see that FB might be worth twice what Yahoo is, and they have just surpassed Google in traffic. So Maybe 50B is a fair price. BUT, part of the Goldman valuation has to do with the fact that they can make fees by selling parts of that 1.5B fund to their clients. And they will likely get to do the eventual IPO, which will earn them more fees. So Goldman has a revenue stream that most of us can’t count on.

Possibly the most telling data point would be Digital Sky Technologies, the Russian firm. They are already an investor, and they have a pretty big stake. If anyone has a decent idea of what’s really going on it’s them. If they put in more money, then you’d hope they did their due diligence. So if I’m arm chair quarterbacking I say it is probably a fair valuation.

On the other hand, if I really had 10 million and GS came to me I’d say no. The reason is simple, you don’t get to see the books (the way GS and DST did). If you can’t do your own due diligence then you’re a sucker; pure and simple. Sure, you might make a lot of money, but you can also make a lot by betting on red in Vegas. Doesn’t make you smart.

Now, if you’re asking what I’d do if I’m an FB employee:

This is actually an easier answer.


Though it always depends on your personal situation, most people would tell you to take some money off the table. What happens if the company explodes? You not only lose your job, but also your nest egg. That’s not smart. The common answer is to not hold your companies stock (everyone cites Ennron here). But this is FB, the hottest investment in the world. So maybe you limit yourself to 10% of your nest egg… If you’ve got 10M in stock, I’d dump as much as they let me. (I think it is 10-15%) Why not take some of that risk away.

Also, you have to expect that you have a ton of unvested options. (Maybe not, but my guess is they use ’em to keep you there.) So even if you sold your vested portion, you still have plenty of exposure.

There you have it, my un-asked-for advice to current FaceBook employees.