People familiar with the matter say that Facebook could file for its initial public offering as soon as next week, according to reports from the Wall Street Journal. The source also says that Facebook is close to picking Morgan Stanley as the lead underwriter. The filing could happen next Wednesday, and the company is aiming for a $75-$100 billion valuation. It is looking to raise $10 billion in stock.
Facebook started in 2004 as a college-only social network. It opened to the public in September 2006, dropping the minimum age requirement from 18-years-old to 13-years-old. In little over seven years, it has grown to a userbase of 800 million people across the globe.
Reports say that the IPO will have two active managers; Goldman Sachs Group will most likely play an important role.
Morgan Stanley was a lead underwriter for both the 2011 Zynga and Groupon IPOs last year. To put this in perspective, Groupon went public with a $12.7 billion valuation, the highest tech valuation since Google’s $23.1 billion. Google sold $1.7 billion in stock.
Facebook has been on a roll these past few weeks, pushing out Timeline to all of its users, releasing 60 new social apps. It also halted its trading on secondary markets for three days earlier this week, hinting at an IPO.
Earlier this week, Google Executive Chairman Eric Schmidt gave an over 70 minute long talk to press at the Sun Valley conference here in Idaho. Towards the end of the talk, a reporter asked the former Google CEO whether he, like many in the media world, thinks we are presently in a tech bubble and what Google’s $1.67 billion 2004 IPO at a $23 billion valuation (Google’s current valuation is 171.43 billion) means in light of today’s IPO valuations.
“Oh we were underpriced,” Schmidt joked, before remarking that he didn’t actually know whether or not we are presently in a bubble.
“On the general question of bubble, in the first place you don’t know it’s a bubble until the bubble ends, by definition. The rule I set for myself 10 years ago was that if the press calls it a bubble then I’d pay attention, and let me report that the New York Times, the Wall Street Journal and the Economist have all written articles saying that it’s a bubble.
So you have a couple choices A) The revenue growth possibility on these platforms is so large that you could get the kind of revenue acceleration that justifies the valuations. B) You have a liquidity squeeze where you don’t have enough shares, and they’re artificially high.”
When a journalist pointed out that it sounded like Schmidt was “unconvinced either way,” he said that it’s difficult to know the whether valuations are fair until a significant amount of shares hit the market, usually when employee lockups expire, typically after six months, “You won’t really know the answers until 2012,” he said.
The only clear thing at the moment, Schmidt said, was that real estate values will go up. “Young people who need houses will go into areas of scarce housing resources and there will be competition for houses and housing prices will go up. So for them it’s not a bubble it’s actually a house.”
On what effect if any the seven years of market experience have had on his perspective on Google’s IPO, Schmidt said, “Google went public at a very different time, at what people thought was an unbelievably high valuation, and let me point out that we’ve never traded below our opening price.”
When pressed again by a reporter for a yes or no answer, Schmidt gave the following humble reply, ” I don’t think it’s my job to call the market. It’s a mistake for me to say what the market should think … I’m not a brilliant investor. If I were a brilliant investor then maybe I’d have some status. I’m a computer scientist.” … A computer scientist with a $7 billion net worth.
Although many investors are spinning for the chance to invest in Turntable.fm, the hot music startup has not yet picked a DJ, despite reports to the contrary. Business Insider claims that Turntable has raised $7.5 million at a $37.5 million valuation and “that term sheets were indeed signed yesterday.” But reached a few hours ago as he was boarding a plane, co-founder and chairman Seth Goldstein told me, “We have not closed any new financing.”
There is certainly a lot of interest in Turntable from VCs who want to fund its next round. The buzz among venture investors is that there is intense competition for the deal, particularly between Union Square’s Fred Wilson, Accel, and Kleiner Perkins. Wilson is the clear favorite (Turntable is based in New York City), but he is being outbid by Accel and Kleiner.
The rumor is that Wilson is offered Turntable a $25 million pre-money valuation, while Accel and Kleiner offered double. That could have easily been pushed up to $30 million pre-money, in which case the $37.5 million figure would pencil out as a post-money valuation. (Just remember, VCs send signed term sheets all the time. It doesn’t mean the company has to accept the terms).
Not only are top-tier VCs excited about Turntable, there’s even some potential acquirers sniffing around, including AOL, Facebook, and Sony. As far as I can tell, no formal offers were ever made because co-founders Goldstein and Billy Chasen just got this started and don’t want to sell. Plus, they obviously aren’t having any problems raising money.
Why is everyone going gaga over a startup that launched with a completely different product, Stickybits, that never went anywhere? Turntable is a social music site where you enter different listening rooms in which players can become DJs and spin music while chatting with each other’s avatars. Chris Sacca likes to hang out there a lot (he is a previous investor, along with First Round and Polaris). It’s been gaining some impressive early traction, even though you still need to know someone to get in.
It is social music discovery at its best. You can listen to hours of full-length songs selected by other players in a variety of different themed music rooms. The better the DJ, the more points everyone else rewards him with. And if you like a song you can add it to your playlist, or buy it through Amazon or iTunes.
But the business is not a slam dunk. Turntable pays per-stream fees just like Pandora or other “Internet radio” services. The music labels could decide to crack down on Turntable and try to extract higher fees. But Turntable’s early growth and engagement numbers are too high to ignore. People spend hours in these rooms. Maybe this time, the labels won’t kill it before trying to work out a deal. Even then, though, Turntable will have to find other ways to make money—perhaps through digital goods or better avatars, sponsored rooms, or some people might be willing to pay to be a featured DJ.
Twitter is once again raising money, this time at a $7 billion valuation, according to Spencer Ante of the Wall Street Journal. That valuation would be almost double the $3.7 billion valuation Twitter got last December when it raised $200 million from Kleiner Perkins and other private investors.
Twitter certainly could raise more money. Many investors would like to own shares, despite the fact that it hasn’t yet found a revenue model to match its technological and cultural impact. Perhaps DST, which was muscled out of the last round by Kleiner, would be interested to take another look.
Despite all the IPO activity among Web companies these days, Twitter is not believed to be preparing for an IPO anytime soon. It simply doesn’t have the financials to make that kind of run for the public markets. But with 200 million tweets per day and growing, there’s got to be a business in there somewhere. Right?
The company is raising $50 million, and all of it will go towards building out the company, no secondary sales here. The valuation had been rumored to be as high as $1 billion, but our sources say it settled out at $550 million pre-money, $600 million post.
Part of that is because the round was mostly done by insiders. Leading it was Andreessen Horowitz, still the only major Valley firm invested in the company. Ben Horowitz did the deal and is remaining a board observer only. Union Square Ventures, AOTV also reupped in this round and Spark Capital came in as a new investor, but not the lead. The money will be used to build out the merchant platform, the San Francisco office and fuel international expansion, said founder Dennis Crowley in an interview.
Foursquare’s ten million users are impressive for a mobile app, but small compared to numbers other $1 billion-club Web companies are touting. Revenues are scant. Some firms said they shied away from the deal, because they felt monetization was only more unclear now. With the local space on fire, Foursquare’s target advertisers are already beset with sales people from Yelp, Living Social, Groupon, Google and others calling on them. There’s going to be a level of retailer fatigue, and business-wise Foursquare is late to the party.
A valuation in the $500 million range would be a big but not unreasonable step-up from Foursquare’s last round which was priced at $120 million. That’s still rich, but that’s the market. Plus, from the venture firm’s perspective, a heady valuation only matters so much. Only slightly more than $20 million has been invested so far in the company, and any investor will have a liquidation preference, meaning they get paid first in the event of an acquisition. So a $50 million deal at any price wouldn’t lose money unless Foursquare winds up being worth less than $70 million.
We expect it to become public today, and we’ll update as soon as we hear more.
Square is still working on raising its $50 million-or-so next round of venture capital, and we’ve heard from several sources why it’s taking so long. It seems Square is no longer content to be in the $1 billion valuation club, which is admittedly getting a little crowded. I mean, once they’ve let Spotify in, they’ll let any hot app in, right?
Square is now angling for a whopping $2 billion valuation. That’s caused some well-heeled investors to balk, while others are still listening.
Momentum aside, Square is trying to do something that’s incredibly hard and expensive. Everyone agrees that payments need to be disrupted again (except maybe eBay and the credit card companies), and given the general antipathy towards to financial sector, the time is right. And Square seems to have the best shot of anyone out there.
In addition to a sexy device and UI, Square CEO/Twitter founder Jack Dorsey has a major edge in promoting a brand, because he’s reached that rarified level of status where he could be interviewed by Charlie Rose, Oprah or Howard Stern on any given week. That’s important because Square needs mass market promotion, and that can get expensive if you have to pay for it.
But Square is still a long way from pulling off the necessary network effects for the business model to work. And Dorsey also represents one thing that worries potential investors: A CEO who is splitting his time between two companies, in Dorsey’s case Twitter and Square.
Up until now, ecommerce valuations have been relatively reasonable compared to social media valuations. As Aileen Lee of Kleiner Perkins and Kevin Ryan of Gilt Group discussed on stage at Disrupt, there’s resistance for these companies’ prices to get too out of control because frequently the margins are tight and scaling up takes time and investment.
Also, ecommerce companies have a pretty clear business model. That sounds like it should be a good thing for whetting investor attention, but the unfortunate truth is nothing ruins a wildly speculative valuation like real revenue numbers. Real revenue numbers usually get multiples off existing revenues, not multiples off the promise of what they could be.
Someone should tell all that to BeachMint, because its new funding round seems to break all of those preconceived notions. The company has confirmed exclusively to TechCrunch that it has raised $23.5 million, just six months after its last $10 million venture round. The company wouldn’t comment on the valuation, but according to our sources it was at a rich $150 million pre-money valuation.
This brings BeachMint’s total invested to date to $38.5 million. This round was lead by Scale Venture Partners with Chicago-based LightBank coming in as a new investor as well. Also participating in this round were all the existing investors including Valley firms Trinity Ventures and NEA. Scale general partner Sharon Wienbar had been tracking the company for a while and was impressed by the combo of a strong curation model, an experienced team mixed together with “a little of that Southern California celebrity magic.”
BeachMint, started by MySpace cofounder Josh Berman and Diego Berdakin, primarily operates a site called JewelMint, which is almost the exact same model as ShoeDazzle. People join a monthly club, fill out a fun survey to asses their personal style, and they’re shown a selection of jewelry each month they might like for about $30 each.
Unlike the old CD clubs of my childhood, there’s no obligation to buy something every month. Like ShoeDazzle is cofounded by Kim Kardashian, JewelMint has some celebrity backing too, from Kate Bosworth and her stylist Cher Coulter. (In case it’s not clear, they did not design the jewelry used to illustrate this post.) Its second site, StyleMint is opening in June and will feature T-shirts designed by the Mary Kate and Ashley Olsen for $29.99 per month. The plan is to expand to multiple verticals, not just in women’s apparel. Things like food, wine, beauty products are all on the table. “We have 100 ‘Mints’ we’ve thought of,” Berman says.
The company seems to be doing well roughly nine months after the launch of JewelMint, but the rich valuation caught several Valley VCs by surprise. ShoeDazzle also recently raised a round of venture money at impressive terms: Andreessen Horowitz invested $40 million at a valuation we originally reported to be north of $200 million. We’ve since learned the post-money price was $280 million. Also not bad.
But a source with knowledge of both companies tell us there is one big difference between the two companies: Their revenues. ShoeDazzle is doing roughly $5 million in monthly revenues, while JewelMint is doing just $500,000 a month– literally ten times less. What made Andreessen Horowitz so hot and bothered to get in ShoeDazzle was the model in part, but it was also the revenues, the growth, and the company’s rabidly engaged Facebook fan page, which has more than 1 million users. JewelMint’s fan page attendance is about half that; then again it’s a younger brand. It also didn’t hurt that ShoeDazzle founder Brian Lee’s other company LegalZoom just raised a round from Kleiner Perkins and is expected to go public this year.
Either Shoedazzle’s investors got a steal, Berman is an ace negotiator, or investors really believe the vertical strategy is going to catch hold in a big way. BeachMint wouldn’t comment on revenues or the valuation, but said they had multiple bids at that price. “We talked to very quantitatively driven investment firms, and they got very excited when they say the numbers,” Berman says.
A couple VCs we spoke with say they passed on the BeachMint deal because of concerns over whether this model works broadly across all a myriad of verticals. After all, sprawling shoe collections have made Imelda Marcos and Carrie Bradshaw aspirational figures for many women– it’s hard to think of many cult figures with obscene collections of $30 earrings. And other verticals may make less sense. How many categories are there where you want to pay $40 to have a new item every month? How many sunglasses, hair accessories, bath products or handbags does one woman need? When it comes to clothes, H&M and Zara are formidable low-cost, real-world incumbents.
Indeed, ShoeDazzle and JewelMint’s success is theoretically at odds with the philosophy behind another hot ecommerce company, Rent the Runway, which tries to solve the problem of a having a closet-full-of-nothing-to-wear by allowing women to rent a couture piece for the price they’d spend on something new at H&M.
Weinbar and BeachMint’s founders agree that jewelry is a far less intuitive category, and say the fact that JewelMint is going so well is evidence that there are others out there that might surprise us all. The risk is overload, particularly now that two companies have scored rounds at such impressive valuations. No doubt even more copy cats are on the way. Getting into the too-siloed “It’s a Facebook for people who like fish!” territory rarely ends well.
Recently I sat down with a well-connected Silicon Valley CEO who just raised a ton of money, and who knew of other startups raising even more. There is a new startup club of younger companies raising money right now at $1 billion valuations. I already knew a couple of them, but I started asking a few venture capitalists and now I have a pretty good list of who is in that club and who is trying to get in (see below).
As we all watch the established Web companies go public (LinkedIn, Pandora) or prepare for an IPO (Groupon, Zynga, Facebook), there is this new class of younger, but fast-growing, startups rising up right behind them. A lot of them are out raising money right now at $1 billion valuations. These are $50 to $100 million rounds, and they are generally going to companies showing incredible growth rates in both users and revenues, at least according to investors who have looked at these deals.
So who is in the new billion dollar valuation club?
Airbnb is definitely in the club. The crowdsourced marketplace for turning your apartment into a hotel for a night grew 800 percent last year in nights booked to 800,000. There are currently 60,000 listings, and bookings keep growing by 40 to 50 percent a month. Sublets are next. This is going to be one of the biggest companies to come out of Y Combinator.
Square is also in the club. It is raising at least $50 million. Square passed 500,000 card readers and 1 million transactions in May, and is processing more than $3 million a day in mobile payments. COO Keith Rabois told us at Disrupt NYC that Square will do $1 billion in transactions this year, and he thinks it could ultimately do better financially than Paypal (where he was an early executive). Vinod Khosla recently joined the board.
Spotify is finally closing its $1 billion round that’s been in the works since at least February, with DST, Kleiner, and Accel participating. The $100 million or so it is expected to raise will help the music streaming service enter the U.S. market. Finally. Maybe. We’ve been waiting for you.
Dropbox, the Y Combinator file-sharing startup that only ever raised $7.2 million might end up with the largest valuation in the club, perhaps as high as $1.5 billion or $2 billion. It’s just growing like crazy, with 25 million users saving 200 million files daily. That’s up from 4 million users 18 months ago. But this deal is the one that keeps getting pushed out (it is growing so fast that the longer it waits to take money, the higher the valuation).
Gilt Groupe is already in the club. It closed a $138 million round at about a $1 billion valuation last May. One of the first companies to introduce online flash sales in the U.S., Gilt is on track to do $500 million in revenues this year and has expanded from fashion to food, travel, local deals, and more.
FourSquare is also rumored to be out raising another round, but it might not quite make it into the $1 billion club because its revenues don’t justify that kind of valuation. Unless, that is, it pulls a Twitter.
Just above this group, is Pandora (which just went public with a $2 billion market cap), LivingSocial (with a $3 billion valuation), LinkedIn (already public, with a $6.3 billion market cap), Twitter (which is worth anywhere from $3.7 billion to $10 billion), Zynga (which will be worth north of $10 billion when it goes public), Groupon (which could be worth more than $25 billion) and Facebook (which is already worth $50 billion and could go as high as $100 billion by the time it IPOs).
Image credit: John Talbot