Just more linkbait from 37signals. This article is being really pedantic by only focusing on the last transaction.
Facebook sales on SecondMarket have been hovering around the $70BN range since 6 months ago (1) so there is clearly enough interest in a private market auction to place it there.
Calling this "Grossly Irresponsible" is laughable. Facebook's stated revenue and earnings are ahead of Google's pre-IPO numbers, probably enough to justify the 3x valuation (Google IPO'd at around $25BN IIRC) they will seek in their offering.
Not to mention that this is the exact same math used to determine the market capitalizations of all companies.
Linkbait gets you links, it also destroys your credibility. Which, by the way, is the reason I read hacker news and not any of the other numerous alternatives.
HN (front page) is still very susceptible to linkbait, though - Techcrunch are particularly good at "gaming" HN.
I wonder if people on this site have always been so weary of 37signals, or if the company's reputation has just slowly eroded with all the meagre diatribes.
The 37signals folks are interesting: as product designers and product managers, I have the utmost respect for them. As observers of the VC scene, their opinions and observations are often useless. That said, if you don't want to go the VC route and instead want to have a go at building a successful business without outside financing, I think Getting Real and Rework are must-reads.
Genius is rarely universal. William Shockley invented the transistor — yes, a gross oversimplification — but was an advocate of eugenics. Henry Ford and Charles Lindbergh? Nazi sympathizers. No, I don't think Jason Fried, DHH, and co. are monsters, but these high-profile examples show that skill, talent, or insight in one area do not necessarily transfer to others. Not everyone is a Leonardo da Vinci.
I'm not attacking 37signals; I'm offering a nuanced opinion. Notice that I highly recommend much of their work. As for the examples I chose, I suppose it would have been better to choose blander ones, but no bland examples popped into my head as I wrote — nor have any occurred to me in the hour since I originally wrote my comment. There must be some example of a baseball player who had great hitting ability yet insisted on trying to steal bases despite being universally acknowledged as a horrible base stealer. But I don't know who he is.
Shockley, Ford, and Lindbergh possess precisely the sorts of nerd, capitalist, and ballsy qualities that we as HN readers often admire. They serve as disquieting reminders that people like us can be guilty of terrible lapses in judgement, perhaps because of the success they experienced doing the things we (reservedly) admire them for.
P.S. You completely changed the content of your comment over a half hour after originally posting it. Is that considered a faux pas or is it a completely legit thing to do?
It is linkbait because the article doesn't actually argue for his point in any meaningful way or suggest any alternatives, its just a headline written to catch attention, which we both admittedly fell for given our comments here.
The article suggests we can only determine market cap by a larger percentage sale of the company. I think this is a poor argument for a number of reasons:
1) Bid ask pricing is a very well established economic model. In active market, which I would argue Facebook has due to SecondMarket et al, it tends to closely approximate the value of the asset. Certainly there are market or sector wide bubbles, but that is an entirely different argument.
2) The counterexample used is poor. He uses the example of Digg which was almost completely illiquid at the time of that article. Additionally, had Kevin Rose actually wanted to sell Digg at that point in time he probably could have actually garnered that price. The 37signals $100Bn valuation is a straw man argument that is not based in reality at all.
The most recent investors would not have bought the stock if they had assumed that their investment would be worth less in the future, therefore, yes, they are valuing the company at $80bil or whatever the number is. This is unlike the "37signals is worth $1bil" link-bait stunt in that people expect to make money on their Facebook investment.
Of course, GSV is simply betting that Facebook will be valued by the public markets for more than $80bil at some point in the future, not necessarily for any extended period. They might very well be hoping to make money off Facebook in a greater-fool-theory play.
"The most recent investors would not have bought the stock if they had assumed that their investment would be worth less in the future,"
This is true.
"therefore, yes, they are valuing the company at $80bil or whatever the number is."
But this does not follow. They are valuing their investment at the price they paid. They aren't (necessarily) valuing the rest of the company at all.
For instance, they could believe that Facebook's total value will crash to nothing in the next couple of years, but that (due to demand for Facebook stock) they will be able to make a 500% profit by selling off their investment beforehand.
That's an extreme example, but illustrates a problem with extrapolating a company's value from the sale of a small percentage.
I'm sure others have studied this, but intuitively something like a rolling average seems to make more sense for that sort of extrapolation.
AFAIK, market capitalization has not much meaning for pre-ipo stock. Problem is that, IPO price isn't just the last price at which the stock was bought in secondary market. Also, there is no indication if what kind of stock was sold. If it is not common stock, then this definitely wont be indicative of the actual valuation.
Facebook sales on SecondMarket have been hovering around the $70BN range since 6 months ago (1) so there is clearly enough interest in a private market auction to place it there.
Calling this "Grossly Irresponsible" is laughable. Facebook's stated revenue and earnings are ahead of Google's pre-IPO numbers, probably enough to justify the 3x valuation (Google IPO'd at around $25BN IIRC) they will seek in their offering.
1. http://techcrunch.com/2011/01/27/facebook-shares-dip-7-in-mo...