Rumor - Two Hedge Funds to invest in Facebook

Working in the stock trading world by day, you hear tons of rumors. We work on Cutcaster at night;-) "Company X is going to buy Company Y." "Company Z is going to report lighter than expected revenues." "The US captured Osama bin Laden with Posh Spice." "The Knicks traded for Kobe Byrant." ALL BS in almost 99% of the cases.

What some are hearing today is that on the heels of Microsoft's $240 million investment in Facebook, two other hedge funds in NYC are also possibly investing $250 million a piece at the same $15 billion dollar valuation. That would give Facebook a cool $750 to poach more talent from the likes of Google, keep their staff of 700 well fed and build up their European and global brand.

To quote a friend who spoke about this, "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."


A bit harsh of commentary towards public investors and the Web 2.0 potential bubble but some parts are true.

Regarding Rumors. Reminds me of an old quote. "Those that know, don't say, and those that say, don't know." So be careful with what you hear and choose to believe.