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January 05, 2007

StudiVZ Acquisition Means FaceBook Users Worth $100 Each

posted by MR WAVETHEORY at 1/05/2007 05:38:00 AM
Private equity guys, VCs, you name it, they all love to do comps. Comp this. Comp that. Big bonus comp! Well, the comp of the day that every VC is studying the StudiVZ comp, because it's one of the largest exits this year for a Web 2.0 company. Ok. Fine, it's the first exit. In fact, the question of the hour is: What does the StudiVZ acquisition mean for the value of Facebook?

What does the StudiVz comp say about FaceBook's valuation?

We want to solve the following equation (even a third grader can do this)

Number of Users * Price Per User = Valuation of StudiVZ

StudiVZ Number of Users: 1 million users
Valuation of StudiVZ : $100 million

1 million * X = $100 million

Solve for X

Price Per User: $100

Simple enough? Now do it for FaceBook except we want to solve for Valuation of FaceBook this time around. Let's assume a FaceBook user is worth the same as a StudiVZ user (hence the comparable)

FaceBook Number of Users: 13 million users (via)
Price Per User: $100

13 million users X $100 = $1.3 billion

So, we can debate all day about whether FaceBook is worth $1.3 billion or whether the StudiVZ deal was priced off of a $1.3 billion valuation for FaceBook to figure out whether the chicken or the egg came first. I don't know.

But if I were a betting man, my bet is that the StudiVZ deal was based on an assumption that FaceBook is worth $1.3 billion, the indisputable fact that there are 13 million users, and hence, the indefensible conclusion that each user is worth $100.

That neither proves nor disproves the valuation of FaceBook, but merely shows that there are companies out there in the world that are willing to pay $100 per user for a Web 2.0 company.

So, if I were a startup entrepreneur, next time I meet a VC, I would demand to have my company valued at the "StudiVZ valuation" and the "FaceBook comp."

For all those twenty something year olds out there, if you're still in college and have started your own FaceBook clone, mention those two magical words to your VC and you'll sound like a genius. Best of all, you'll get a great valuation.

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