$15 Billion?

The proof is in the pudding........and I don't see Bill Cosby anywhere in site.

Peter Thiel exclusive: Facebook, the classic growth vs. value story

Yeah f*cking right! $15B. Wtf! I've admitted in the past that I have a love/hate relationship with fb, but I might have to just throw in the towel and retire. I haven't been blogging long, but it seems like ages ago when I first blogged about the zuckster being idiotic for not selling @ $1B. Then, it was a $2B valuation and I thought......that's just being damn greedy. A couple months back microsoft rumors resurfaced and the valuation went up to $10B. I knew that could never happen especially given Ballmer's fad comments. Low and behold msft bit the bait and so did two hedge funds. $740M for less than 5 percent of the company. I guess fb will go public and everyone will be happy.

So coincidentally, I had the pleasure of attending the MIT Sloan Club of NY's Annual Hedge Fund Dinner. One of the guest speakers happened to be the Peter Thiel. Most of the conversations that night revolved around the current climate of valuations. Peter gave us his take on the 3 bubbles (housing, credit lending, emerging markets) that we are currently facing and he believed that globalization (or the expectation of globalization) may be the root cause behind every boom, bubble, or bust.

We all listened intently....trying to glean some type of "free" tidbit from the over achieving entrepreneur turned hedge fund guru. After his 30 minute talk, we had about 5 minutes of Q&A. The first 3 questions were basic questions that could be answered reading any macro textbook...............then came the final question from the wild gunslinger. My question to Peter:

"Peter, given the context of tonight's discussions, where do you see the recent facebook investment by microsoft and 2 hedge funds at a $15B valuation?" - whooknew

Before he could start to answer the question, Peter began with a diatribe of disclosures starting with he's on fb board, was an early investor, believes in the company's long term plan, blah blah blah blah.

He went on to say that Facebook is "the classic growth vs. value story." He contends the $15B was absolutely justifiable in the current climate. Now........I'm not mad at Peter. Why would he ever say anything different? It would be suicide (and stupid) for him to to question the valuation. He is on the board and has a lot riding on his own farabuttos.

The funny thing is........after listening to Peter recount the history of markets, mobs and mayhem (and I mean history), he had the nerve to look us in the face (a room full of pretty smart people) and say NO, we are not in a tech bubble. GTFOH. Here are his three reasons.

1. Prospect Theory. (I don't recall him using the term, but I've taken the liberty to interpret what he was trying to say.) Basically, people value gains and losses differently. He recalled some study that says we feel loss much more than gain......almost 3 to 1. Peter contends that the 2000 bubble is still fresh on the brain and people have not forgotten the pain. Since investors lost so much money with the last tech bubble, they would need to make 3 times the money they lost in order to get to a new irrational state. (These are not his exact words, but my understanding of his words.)

2. No tech ipos. During the late 1990's, the way to monetize a tech investment was through an IPO. There were a number of entrepreneurs who made their fortune after going public. Peter contends the absence of tech IPOs is an indicator that we are not in a speculative tech bubble.

3. HBS grads are not in tech. In the late 1990's HBS grads were going into startups. From 2005 to date, HBS grads have been flocking to private equity and hedge funds. Since HBS grads have not gone into startups yet, we are not in a tech bubble. (This was somewhat of a joke, but I believe the metaphor is plausible.)

After this third point........I sat patiently.......waiting, hoping, praying for some insight........ I would still be sitting at the Tribeca Grand Hotel right now if I continued to wait for some reasonable explanation.

IMHO, #1 is purely wishful thinking. I could counter his application of Prospect Theory with Sunk Cost Fallacy. We can't say that because people lost money in 2000 and haven't made 3x the amount lost, we are not in a bubble. Read #1 again. Seriously, this just sounds asinine. I could argue that given the current level of capital raises, people are placing more bets on tech companies now. Granted it takes less money to start a company, but startups are raising more money at higher valuations. Sounds like doubling down to me.

#2 just sounds good. I can't really agree or disagree. People have been waiting for the tech ipo window for awhile. Here's a current status check. Here is some research on IPOs (from April 2007). Wall Street fiascos and Sarbanes-Oxley have to be addressed as well. Why would you want to IPO when you could be acquired, get paid in cash, and not have to deal with all the extra reporting/disclosures. Let's not forget going across the pond.

# 3 is probably the most palpable. If you replace "HBS grads" with "seemingly informed herds," one could agree with Peter. By the time people realize something is good, it's time to get out. Next time we go to MIT to recruit, I'll stop by HBS and take a poll on where people are going after graduation. Hopefully it's still PE and hedge funds.

Honestly, the most disconcerting thing for me was not Peter's response. That's his story and he's sticking to it. I'm not mad at him. For me the problem is the 30 minutes prior to my question. He cautioned the audience to move out of investments that are levered and suggested not investing in popular, crowded ideas. I guess fb is an anomaly and social networking is not a popular, crowed space. I guess fb is profitable and not leveraging current growth with future cash flows. I'll just stop here and let the numbers speak for themselves.

So is fb worth $15B? It doesn't matter what I think. msft paid that much.........so it has to be worth $15B. The real question was...........are we in a bubble?

------------------ Extra

What was Peter's take on yoonew?

Why did it take you so long to build a futures market for tickets?
Why would you try to build a startup in nyc?

I'll respond in a future post.

Is Facebook worth $15B?

Here are the BBC's 15 reasons why Microsoft may think Fb is worth $15B.

Good try. I think JohnM hit the nail on the head! Thanks John for your honesty.

#16 JohnM

October 25th, 2007 at 9:32 am

Microsoft is LEASING Facebook for the next 4 years. Facebook is not worth $15B, Microsoft is leasing an advertising distribution system. The equity ownership is so small as to become almost immaterial.

Of course, Facebook will now attempt an IPO northwards of $15B, saying that Microsoft already set the valuation floor. Of course this assumes all the lawsuits regarding ownership are settled.

If the company does go public, what the myopic public should realize is that they are not buying the advertising deal, along with shares. Only Microsoft gets that. Don’t be fooled, Ballmer cut a better deal than the public will ever get. Microsoft is NOT valuing Facebook at $15B. No, no, no. Microsoft is valuing a potentially lucrative advertising distribution deal and a small percentage of Facebook at $240MM.

The public are sheep though, so I imagine Facebook will line-up the investment banking sheperds to take them out at $20B+. Baaaahhhhh.

Now why might hedge funds get involved? Because the bump-up in valuation will go from 15B to $20B on an IPO. Nice % increase for a holding period of likely only a few quarters.

But keep in mind, it’s the investing public (proxied through mutual fund managers, etc.) who will pay the price for all of this. Feels like 2000 all over again. Great move for Facebook, probably a smart move for Microsoft, and probably a smart move for the hedge funds. But remember, this is a game of musical chairs. And as usual it is often the naive public investor left standing.

Did you hear that? Musical chairs! John, holla at me.

The Power of Facebook (I can't believe I'm saying this)

I'll be the first to admit, I'm a self-proclaimed Mark Zuckerberg hater. I'm not sure how we've gotten to where we are today, but Facebook is all over the place. The more I try to run from it, the more difficult it becomes to avoid the revolution. I think I came to this realization sometime last week. While connecting with an old classmate, I saw that he joined a group called "Don't Name Princeton's Mascot."


Prior to logging in Facebook, I had no idea that this "contest" existed. Some genius at the university thought it would be a good idea to name the Princeton mascot. How idiotic (for a plethora of reasons)! I immediately joined the group and proceeded to invite every single Princeton friend. 20 minutes later I had 20 friends join me. The wall posts on the group page confirmed that my outrage was not alone. As of right now, there are 500+ members. Now I can't say that we've won the battle, but the link to the asinine contest has been removed from the varsity sports homepage.

Is our group that powerful? Is Facebook the next Google? Did Mark just punk Shirley? I won't go so far as to say yes, but something happened. Something potentially powerful.

Mark...c'mon bro. Make me like you. Just admit it. You didn't plan this revolution. You got a lot of help. I would respect you a lot more if you just admit that luck has a lot to do with Facebook's success.

Better CEO: Einstein or Bartleby?

I just read an old post by Jonah Keegan on NYCE (New York City Entrepreneurs). He posed the question, "When should I start blogging my new business?"

Jonah's answer:

My experience (very tech heavy) is that ideas do not make or break 99% of the companies in the world, people do.

I completely agree. As a new entrepreneur with limited resources you have to get your name/idea out to the world, as soon as you are ready. How does one define ready?

You don't. Because you can't. You will never be ready so there is no reason to postpone. Just FN Do It! (I'm not saying be foolish. Make sure you are in position to make the competition irrelevant before you open your big mouth).

How valuable is an idea?.......no really.....tell me! Every "idea" has already been identified. Someone has already thought about it and done it. It might suck, but somehow it's getting done right now. Your "idea" isn't scared and anyone who thinks so.......kick rocks! Your "idea" is simply to do something better than everyone else (perhaps in a different way).

It's all about the execution. Einstein had brilliant ideas. I'm sure Bartleby the Scrivener had a plethora of great ideas too.......like go on a vacation for example. Now........who would I bet the farm on? Neither! Einstein doesn't have enough stamina to do a full day. And Bartley.....he could have been a rock star CEO, but...........well.........we all have different preferences.

Yeah I hate on Facebook..........because they don't have a revolutionary idea. But in terms of implementation, Mr. CEO Bitch is killing the game.

Bull$hit until proven true......Vitaminwater = 50 Cent's 40 bagger

They say the proof is in the pudding. Well...I want to hear the words straight out the Cosby's mouth. I've scoured the internet and talked to several alternative information sources to substantiate the RUMOR that "50 Cent banks $400 million on sale of Vitaminwater."

Now you know I'm a hater....but are you telling me that 50 is the hip hop Warren Buffet? Who gave him the sound business advice to invest $10M for a 10% equity stake in 2004? C'mon 50, who is your broker?

Somebody....Anybody....say it ain't so!!!!!!!!!!!! Because if it's true, I'm about to shoot myself 360 times (40 x 9) and start working on my album ASAP! Howard, how did you miss this?

WTF! I'm really in the wrong business. First Facebook (needs a separate post), now this. I just got off vacation. My therapist advised me to slowly ease back into the hate. F*ck him!

Allow Me To Reintroduce Myself

After years of procrastination; I’ve finally decided to stop talking trash and just blog (ok, I lied...the trash talking will never stop). At first, I wasn’t really sure what I would blog about……then, I started reading a sample of random blogs and the “hate” started to fester. Hate you ask? Absolutely! I couldn’t understand how many random a$$ people could drive so much traffic to their random a$$ blogs.

(Disclaimer: Although I have full command of the English language, at times the use of profanity is mandatory to underscore the specific feeling I would
like to emphasize. You’ve been warned.)

For those who don’t know me, I’m a self-proclaimed “hater”. Not in a malicious way, but I'm a competitive realist. Those who do know me, they know that “I only say true $hit.” I have no problem saying the things that others either don’t know or are too afraid to say. This is usually a character flaw for most, but I try to temper “hate” with tact and emotion with logical reasoning.

What do I “’hate”? Here are few examples:

I’m sorry, I'm a hater. What 22 year old of sound mind and body would turn down $250M in cash (1/2 of $1B minus taxes)?








I’m a hater (and a fan). Do you know any 33 year olds that made $1B+…….LAST YEAR?









He’s a hater. I’m a hater. The hate is mutual. I only aspire to be half as lucky.







And so I bring you Transparent Volatility; a clear, open discussion on the topics that tend to piss me off the most.

Please read and enjoy........................

"Then you will know the truth, and the truth will set you free!"