The murkiness surrounding Facebook's valuation got in the way of its attempt to acquire Twitter last year, according to a BusinessWeek article posted Sunday.
Early Facebook investor Peter Thiel's interview with BusinessWeek make it sound like while the talks were serious, they simply didn't go that far: "It became pretty clear it wasn't going to happen...The deal would have to be done with Facebook stock. And then you have to figure out how much the stock is worth." Twitter, according to an anonymous source, was told that the social network's valuation was in the range of $8 billion or $9 billion but was aware that employees were privately trading stock at a valuation that was, at most, half that.
So the deal didn't happen.
Controversy over the true value of the privately owned company also came into play earlier last year when the settlement of the ConnectU vs. Facebook lawsuit was being negotiated. Court documents were redacted to keep the true valuation under wraps, and media outlets, including CNET News, petitioned to have the documents made public. The founders of small social-network ConnectU, who had sued Facebook because they claimed founder Mark Zuckerberg stole their code and business plan, contested the original settlement when they said they had been misled as to Facebook's true valuation.
Way back in October 2007, Microsoft invested $240 million in Facebook at a $15 billion valuation. The company's actual valuation was never really that high, and with the recession, it's currently somewhere south of $4 billion.
But valuations aside, would Twitter really have been a smart buy for Facebook? The "status update" feature on Facebook is very Twitter-like, but integrating the two services would've involved all kinds of complications. For one, Facebook's content is still hidden behind a log-in wall, whereas Twitter's "tweets" proliferate all over the Web. And while Facebook's profitability woes have been well-documented, Twitter beats it in that department: the buzzworthy start-up hasn't yet made public a business model of any kind.
In his interview with BusinessWeek, Thiel, one of the founders of PayPal, didn't discount the possibility that Facebook could make other acquisitions in the future. But as the interview also points out, that could be difficult as long as Facebook's valuation remains as volatile as it has been in recent months.
Peter Thiel, the co-founder of PayPal and who rarely gives public interviews, spoke with Michael Arrington at the TechCrunch50 conference today.
Topics ranged from politics to finance and technology. On the item of the stock market, Thiel is concerned that our economy keeps producing bubbles--technology, housing, foreign investing, etc.--yet he does not feel the current technology market is a bubble. Referring to the valuation of Google, Yahoo, Amazon, and other tech stocks, he said, "on a relative basis, they're among the cheapest companies in terms of stock."
But the 2000 bubble, he says, "set technology back 10 years," by discouraging people from getting into technology. Thiel raised the political issue here: Why doesn't our system see and proactively address these bubbles. It's not like they don't have precursor signals.
Michael Arrington and Peter Thiel
(Credit: Josh Lowensohn / CNET)Arrington engaged Thiel in discussing YouNoodle, a project he's funding that applies quantitative analysis to vetting start-ups. YouNoodle examines a ton of variables, including things like how long the founders have known each other, and then predicts not just success for companies but their three-year valuation. Traditionally an exercise for investors, Thiel says that YouNoodle applies, "a division of labor." Computers, he says, do some things better than humans, and "there are certain quantitative metrics that work very well in startups."
For instance? CEO salary. The lower it is, the more like the company is to succeed, since it indicates alignment with growing equity, and also because it keeps the salary cap for all employees reasonable. "It's been powerfully predictive," Thiel says. And the magic number: $100,000 to $120,000. Above $150,000, "you start to have issues."
Thiel, a ranked chess player in his younger years, has interesting thoughts about artificial intelligence and its benefits and dangers. While people used to think that Chess would never be mastered by a computer since it was a reflection of innate human intelligence, clearly people were mistaken about that. And it's instructive, he says. "How many domains are like Chess, where they can be quantified?" Thiel asked. "My thinking is that there are probably more than we think."
Responding to a question from the audience about computers taking over the world: "My own sense, it's not going to happen. But I was wrong about chess."
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