Contentinople - R. Scott Raynovich - Five Questions About the Facebook Deal

Written by R. Scott Raynovich - Light Reading

Wednesday, May 27. 2009 at 10:45 AM EDT Post a comment

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Everybody loves Facebook! After scanning 24 hours of the news flow on the Facebook deal by which Russian Company Digital Sky Technologies bought 2 percent of the social networking firm for $200 million, it's interesting to see how hundreds of bloggers and reporters handle the news in slathering fashion. Aren't there more questions to be asked?

First, let's look at the facts and some of the more interesting tidbits about Facebook so far. Then, I'll pose the five questions I still have about the deal. Here's what we know:

Facebook received a $200 million investment from Russian company Digital Sky Technologies (DST). The press release is here.

The investment was made by buying preferred stock, representing a 1.96 percent equity stake at a $10 billion valuation, according to the companies.

Facebook employees and investors will have an additional opportunity to sell common shares to DST as part of the deal. This is known as a "liquidity event." Like, folks are cashing out. They'll get some bling.

Facebook and DST say that "DST's main assets account for 70 percent of all page views in the Russian-speaking Internet, and its social networks are the market leaders in more than 13 countries."

In October 2007, Microsoft Corp. (Nasdaq: MSFT) acquired a 1.6 percent stake in Facebook for $240 million. That gave Facebook a theoretical valuation of $15 billion. But Microsoft owns preferred stock with liquidation preferences, valued more highly than common shares.

Forbes has cleverly reported that a Russian steel magnate, Alisher Usmanov, now owns a piece of Facebook, indirectly. Would you mess with this guy?

We learn from CNET that Facebook may use this as strategic leverage to expand in Russia and Eastern Europe. Well, duh.

First, credit to TechCrunch for beating almost everybody to this story, which has been in rumor-mongering status for months. Much of the presso-bloggo coverage has been standard fare, such as, "How about that $10 billion valuation!" or "Wow, look at all that cash!".

Now, after digesting everything that's been written, let me outline the real questions I still have about this deal:

1) How does Microsoft feel about investing alongside some scary Russian dudes? And because this Usmanov guy owns Premier League club Arsenal, does that mean that Mark Zuckerberg is now an Arsenal supporter? (ewww...)

2) Facebook says DST has the option to buy up to $100 million more in common stock from employees and investors. Who's ready to sell, and why?

3) Why does this amount seem coincidentally just enough to buy Twitter?

4) If Facebook and Twitter keep looking more and more like each other, doesn't that make them less interesting?

5) Where's Facebook spending all the money it's raising? How do I invest in that company?

Tags: Advertising, Business, Facebook, Microsoft, Technology

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