Venture Roundup: Facebook and OpenX Return to the Well
Confirming rumors that first began to circulate late last week, Facebook announced this morning that it secured a substantial new private equity investment from Russian based investor, Digital Sky Technologies (DST). (release)
DST, whose portfolio companies are estimated to account for more than 70% of all Russian language page views on the Internet, will buy preferred stock equal to a 1.96% stake in the company for $200m. No details have been disclosed regarding the rights associated with the preferred class.
The transaction sets Facebook’s valuation at about $10b.
In a teleconference, Facebook characterized the incoming capital as a cushion and not a necessity. The new money, Facebook suggested, will offer added flexibility. Whether true, or a bit of spin, it is certain Facebook is an expensive company to operate. The scale of servers necessary to handle the data traffic generated by more than 200 million people is massive, not to mention the associated costs for powering and cooling these machines or making sure user data is backed up.
To date, Facebook has raised more than $500m in outside capital to cover this overhead. Last year, Hong Kong billionaire Li Ka-Shing added to his minority position and in 2006, Microsoft invested $240m at a $15b valuation.
The new Russian investment expands Facebook’s global shareholder diversification.
Asked to address the decrease in valuation relative to the Microsoft round, Facebook CEO Mark Zuckerberg suggested the difference was due to the nature of the investments. The Microsoft deal, he said, was more of a “strategic partnership” as compared to a “strict financial investment;” The inference being this new deal is nothing but money. That answer sounded like spin to dodge the question.
While DST isn’t getting a board seat with its investment, the company still explicitly defines its investment strategy as partnership driven. DST ’s goal is to become “a long term partner” with the companies it supports. And Facebook too, is looking for more than just "dumb money." In fact, Facebook says it was approached by a number of outside investors in consideration of this round but the company chose DST because DST brings a “global perspective” and that’s what Facebook needs. With 70% of Facebook’s audience now outside the U.S. (according to the company), the advice derived from investors with success growing businesses in International markets could be very helpful.
So, Microsoft is a strategic investor and DST isn’t? That justifies the price difference? That doesn’t sound quite right. Both companies seem to be bringing more than just their checkbooks to the table. Even so, whether this was a legitimate “down round” or valued based on different deal terms, even at $10b, the numbers still give a healthy valuation to a company that is still experimenting with its monetization strategies.
In addition to the investment, DST plans to offer as much as $100m more to buyout common stock from existing Facebook stockholders. The details of the buyout are expected to be released later this summer. It’s possible, depending on what the terms turn out to be, that the buyback will provide a much desired liquidity option for early employees, or others, who would otherwise be stuck waiting for an IPO or merger to cash out of their vested holdings.
In other funding news… while not on the same scale as Facebook, advertising platform OpenX has also secured new financing. The Pasadena based company announced today a substantial new financing of its own.
The company formerly known as Openads, took in $10 m in a third round. DAG Ventures led the round along with contributions from prior investors including Accel, Index Ventures, Mangrove Capital, First Round Capital and Jon Miller (Miller is Chairman of OpenX but also the former CEO of AOL and the recently appointed head of digital media for News Corp).
Built around an open-source ad server and a marketplace exchange that focuses on the advertising market for midsized businesses, OpenX claims to have a community of more than 38,000 publishers powering more than 150,000 websites around the world. Using the company’s software in either a hosted or downloadable version, these publishers are generating more than 300 billion ad impressions per month.
According to the company, between December 2008 and April 2009, the monthly run rate of impressions for its new OpenX Hosted service grew more than 500% to 7.5 billion impressions.
The company plans to use the proceeds to expand its products and fuel growth.
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