Archive for April 15th, 2009
Facebook raising more money, has termsheets, but what of anti-dilution protection?
- Image via CrunchBase
I just read the Techcrunch report on Facebook‘s latest fundraising activities( Decision Time For Facebook: Term Sheets Received At $2 Billion Valuation). The report talks about the potential heavy dilution that common stockholders might suffer because of 1) a fairly significant down round (taking pre-money valuation down from $15B to $2B) and 2)anti-dilution protection clauses that would apply to the previous investors’ ownership stakes (which means common would bear the brunt of the dilution).
From the article:
The cost of taking money at such a low valuation is higher than it appears. In addition to the direct dilution to stockholders from the new money, old investors at the $15 billion valuation may need to be made whole. Venture rounds traditionally include anti-dilution provisions that give investors more stock if the company raises new money at a lower valuation. Those anti-dilution provisions are heavily negotiated and can end up anywhere from full protection (which is very rare) to no protection at all (which is also very rare). It’s likely that there will be some form of additional dilution, possibly a lot of it, from the $375 million Facebook has raised at that valuation.
Although the current investors will certainly want to preserve their ownership stake as much as possible in any new deal, new investors are not going to do a deal that they think will drive out key employees and founders in droves.
There are a couple of ways to get around this issue. The new investors could require the old investors to waive their anti-dilution protection as a condition of investment. Or, the new investors could require that more common stock options get issued prior to closing. These options could be use to refresh employees and founders who experienced heavy dilution due to the down round financing. My guess is that both of these mechanisms will be a part of any new Facebook deal.
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Rafer on MapReduce vs. SQL
- Image by rsepulveda via Flickr
I really liked this comment from Scott Rafer on the ‘MapReduce vs. SQL: It’s Not One or the Other‘ GigaOM post:
Lookery and hundreds of other companies, many cloud-hosted, are building new business processes that are optimized for MapReduce and similar architectures. In many — even most — cases, these business processes will be far more cost-effective than the ones they will replace. New incumbents will arise, new benchmarks written, and new statistics reported by analysts with new biases.
Companies invested in SQL apps that can be replaced, most often indirectly, by MapReduce-esque apps need to start self-cannibalizing.
We’ve seen this dynamic before in the SaaS market. SaaS products tend to be less customizable than their enterprise software counterparts, but SaaS customers are often willing to alter their business processes to take advantage of what can be major cost savings and cost avoidance (as compared to supporting or purchasing an enterprise software solution).
Maybe the dynamic will play out on the database side as well?
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