Category Archives: liquidity events

When Good Legal Advice Is Worth $10 Million An Hour

When Good Legal Advice Is Worth $10 Million An Hour

One of the highest profile liquidity events in the first half of 2012 was Facebook’s deal to acquire Instagram for $1 billion. The popular mobile photo-sharing service should fit well into Facebook’s growth strategy as a public company, but its eye-popping valuation — more than that of the New York Times, for those keeping score at home — is made more extraordinary by the fact that social media sensation Instagram, at the time the deal was announced, was run by only 13 employees.

Setting aside questions of unique strategic value for the moment, what could possibly make Instagram worth ten figures? Brand recognition, goodwill, user loyalty, mushrooming usage metrics, sure — but perhaps most importantly, a mountain of intellectual property. My quick-and-dirty assessment of the value of Instagram IP, based on pure speculation with no inside knowledge, produced the following taxonomy:

  • Technology, consisting at a minimum of a consumer-facing iPhone app and the server-side innards that handle connections and communications with other users and social networks. Most social media sites and services, at their heart, are gigantic databases connected to Web servers that render the stored data as Web pages, images and other content.
  • Branding Elements including the Instagram name, logo, domain names, trademarks and other identifiers, which nowadays can include everything from Twitter handles to Facebook pages and even vanity domains.
  • User database containing personal information from more than 30 million registered users
  • User-generated content: In Instagram’s case, a vast repository of more than one billion photos contributed by those users, not to mention the 81 comments per second posted on those photos — accounting for the lion’s share of value of Instagram IP in my opinion
  • Proprietary content and design: Admittedly modest by comparison, but it would do the designers a disservice not to give a nod to the app’s user interface.

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Evaluating the Risks in Facebook’s IPO: Would You Invest?

Facebook is forthcoming about the challenges of mobile: No revenue currently generated from mobile advertising; unclear how much mobile use could be monetized; failure to solve this puzzle combined with a dramatic shift toward mobile usage could be a serious problem; and they don’t control the iOS and Android platforms. Frankly, if there were one thing that persuaded me not to invest in FB at current valuations, this would be it. Continue Reading

Valuation Caps and the $650 Million Sale of MySpace for $125 Million

Valuation Caps and the $650 Million Sale of MySpace for $125 Million

Valuation caps can shape the fundamentals of an exit, redistribute value among stakeholders, or even kill a deal altogether. Never missing an opportunity for a good war story, I’d like to revisit one high-profile transaction, the $650 million acquisition of MySpace by Fox Interactive Media in 2005. Continue Reading

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