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The Facebook Deal: The Most Profitable Firms With A Global Presence (Editing Sample)


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The Facebook Deal Name Institutional Affiliation The Facebook Deal Evidently, every new company seeks to explore its strengths, opportunities and improve on its weaknesses so that it can widen its client base and general profitability. This is essential in maximizing the value of shareholders and any other parties interested in knowing the performance of the company, for instance, the stakeholders, clients, top executive management and the government for cooperate taxes. In a contemporary global environment, stiff competition by companies in the same industry is normal. It needs proper administration and efficient strategies for any company to remain afloat. Facebook Inc. is not exceptional. It is a company pretty known by everyone (Turban, King, Lee, Liang & Turban, 2015). Launched in 2004 as The Facebook by Mark Zuckerberg, Eduardo Saverin and Chris Hughes, the company has grown into one of the most profitable firms with a global presence, thanks to a series of steps through which it has been able to raise funds (Basich, 2016)).Therefore, the paper primarily seeks to establish the type of financing used by Facebook and the reasons as to why such funding was used in each round. Also, the essay will postulate what the money was used for in each successful round of funding. Equally important, an explanation of the company’s bubbly corporate valuation during this period will be provided. Finally, the paper will determine how much investors valued the company as well as its major financial numbers. According to Taulli (2012), seed financing is the company’s first round of funding. This stage involved a relatively small amount of money, ranging between $1000 and $100,000. The low capital made it easy for the company to conduct a pilot for the proposed business. Facebook was initially launched as The Facebook with contributions from Mark Zuckerberg and his classmate, Eduardo Saverin. Together, they raised about $15,000, which helped cater for some costs, including website operations. However, the relationship between the two hit a snag, a fact that compelled Eduardo Saverin to freeze the new company’s bank account (Turban et al, 2015). Nonetheless, Zuckerberg had no option, but to seek the help from his father, with whom they raised an additional $85,000 to facilitate the company’s operations (Taulli, 2012). Additionally, Taulli (2012), illustrated seed funding in detail, he pointed out that the stage tends to be a mess for most companies. In Facebook’s case, he stated that the lack of experience in business and legal matters among the co-founders led to the initial funding problems they faced. The next round of funding involved angel investors. This stage included wealthy individuals who, upon witnessing the potential of an emerging company during its early stages, decided to invest in it. According to Taulli (2012), angel investing involved large amounts of money ranging between $100,000 and $1000, 000. In Facebook’s case, the company raised a total of $ 600,000 from angel investors, with Peter Thiel, PayPal’s CEO and co-founder, contributing the largest share of $500,000. Other angel investors in Facebook were Reid Hoffman and Mark Pincus, who donated $40,000 each. Some Facebook employees at the time also invested in the company, making a total contribution of $20,000. Read (2010) suggests that just like many other startups, Facebook’s angel investment was a pooled investment. He further argues that this type of investment limits the amount of equity obtained by each investor as well as their liability. Angel investments are usually followed by venture capital funding, which is the focus of this paper. According to Taulli (2012), venture capital funding involves various managers who invest a large amount of money across a portfolio of companies. He points out that it often takes place in a number of rounds, with the first phase ranging between $5 and $10 million. In its subsequent stages of venture capital, Facebook involved some investors, including Accel Partners, Greylock Partners, Meritech Capital Partners, Microsoft Corporation and Digital Sky Technologies Limited. The company participated in the first round of venture capital funding in April 2005. In this case, Accel Partners helped it raise $12.7 million (Brigham & Ehrhardt, 2013). The number of active users on Facebook at that time was 5.5 million people. The money obtained from the first phase of funding was aimed at expanding the company, allow it to reach more users, and cater for the growing expenses of the expanding workforce. The third round of financing involved contributions made by venture capitalists. It happened in In April 2006 when Greylock Partners, MeriTech Capital Partners and the existing investor Accel Partners funded the organization. The company announced that it had raised $27.5 million. According to Turban et al, (2015), Facebook needed this money for additional investments to ensure steady continued. Another round of venture capital funding involved Microsoft Corporation later on in the year 2007. However, reports indicated that it the company invested $240 million. According to Taulli (2012), this amount was meant to help Facebook Inc. venture into the global markets. Further, Mangalindan (2011) postulates that Microsoft was criticized for making such venture which market experts argued that it was an over-investment. However, the growing value of the company in the subsequent years proved the critics wrong. In May 2009, another venture capitalist, Digital Sky Technologies, invested $240 million in Facebook Inc. These funds were specifically meant to strengthen the company’s position in the social media industry given the increased competition from other companies such as Twitter and Google (Brigham & Ehrhardt, 2013). In his discussion on venture capital funds, Taulli (2012) points out that, traditional venture capitalists were involved in more mature companies. Moreover, he also argues that over the past few years there has been a shift in this trend, with venture capitalists investing in startup companies. Notably, he points out that, for many entrepreneurial ventures such as Facebook, early-stage venture capital funding is beneficial, and one of them is the higher value of the company. He further states that, at development phase of an organization, the venture capitalists only invest a small amount of money, a fact that makes them not spend a lot of time on negotiating the valuation figures. On the same note, he also reiterates that incorporating venture capital funding in startup organizations can be disastrous because the venture capitalist may decide to dedicate their time to the partnership if the undertaking shows little signs of breakout momentum. Venture rounds are sought for a number of reasons, key among them include evolving a product, improving a firm’s infrastructure and developing business people. With each investment capital round, Facebook’s post-money valuation increased. One of the factors that could have contributed to the bubbly valuation was the nature of the industry the company operated in (Thebusinessvaluer, 2016). During that time, the pace of technological development was quite high, with the number of users expanding each year. Being an internet-based company, the likelihood that the number of Facebook subscribers would grow with each passing year was quite high. As a result, the number rapidly grew over that period. Management stability could have been another factor that contributed to the corporate valuation (Dickie, 2006). During the period, the company experienced very little management issues, a factor that motivated more venture capitalists to be part of it. Before investing in any venture, investors have to investigate the entities outlook. They have to value the company and determine whether it will generate profits moving forward or not (Carver, 2012). The market forces in the industry in which the start-up operates is an importan...
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