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