As the first public mention of a future corporate venturing windfall, advertising group Interpublic Group’s letter in its 2007 annual report* by executive chairman Michael Roth, filed with US regulator the Securities and Exchange Commission (SEC) at the time, is almost an aside: "We will also be exploring new types of deals and alliances with technology partners, such as those we have already entered into with digital media companies such as [digital marketing company] SpotRunner and [social network] Facebook."
While Interpublic’s coded language for investment as part of a $60m round in 2006 in SpotRunner has also been a success – in April 2008 Mark Rosenthal, former executive chairman of the Interpublic media division, moved to be president of the SpotRunner media platforms division – Facebook’s rapid growth has resulted in more publicity.
Last year, Interpublic told the SEC about a reported 0.4% holding in Facebook as it was valued at more than $200m. It subsequently sold half the holding for $133m to an undisclosed buyer, valuing Facebook at $65bn, according to news provider Financial Times (FT).
The remaining 0.2% could be worth $200m if the company floats later this year – possibly as soon as this month – at its reported $100bn valuation. If Interpublic does exit it would have made one of the largest corporate venturing profit multiples, having paid less than $5m for the total holding in 2006, according to the FT.
The "strategic relationship" with Facebook enabled Interpublic "to fast-track the growth of our social media offerings", Roth said last year. He added: "Facebook has since become a part of daily life for hundreds of millions of people around the world. Its ubiquity has meant the strategic value of our initial investment has moderated, while the financial value of that stake appreciated significantly.
As a result, when an attractive opportunity to divest a portion of our position recently presented itself, we decided it made sense to do so."
Another corporate venturer backing Facebook is software company Microsoft, which paid $240m for a 1.6% stake in 2007. This deal gave the portfolio company a $15bn valuation and, in addition, Microsoft won rights to place international banner ads on the social network.
The most determined public corporate buyer, however, has been Russia-based internet group Digital Sky Technologies (DST), which is backed by Alisher Usmanov, the owner of local coal and iron company Ural Mountain, and investment bank Goldman Sachs, among others.
DST, which has subsequently split into a UK-listed part, Russian internet business Mail.ru, and DST Global, has invested $500m for an estimated 10% stake, divided 2.4% and 7.6% respectively between the two units.
In the case of Facebook, DST waived any right to special treatment should things go wrong and was willing to buy stock from employees. "This is an initial public offering (IPO) substitute," Yuri Milner, co-founder of DST, told news provider Economist.
South Africa-based media company Naspers owns part of Mail.ru and was an early investor in China-based Tencent, which in April invested $300m in DST, giving it a stake of more than 10% and DST a valuation of about $3bn.
Three Goldman Sachs bankers have joined DST over the past three years: Alexander Tamas in 2008, Verdi Israelian, who joined DST as a partner in 2009 after leading private equity investments for the bank in Moscow, and John Lindfors in June 2010. Goldman led November’s $5.7bn flotation of Mail.ru. Goldman has also been the conduit for international investors to buy another $450m of Facebook shares last year as it sought to build ties and win a place underwriting the social network’s IPO.
The interest follows Facebook’s growth from a student start-up at Harvard University in 2004 to a network with about 800 million users. Ironically, despite Facebook founder Mark Zuckerberg’s use of Harvard intellectual property to start, the university has no direct interest in the company and its endowment decided against recommitting to venture capital firm Accel Partners’ ninth fund, which bought more than a quarter of Facebook for $12.2m.
According to news provider Gawker, Facebook made $714m on revenue of $2.5bn in the first nine months of 2010, while newswire Reuters claimed Facebook’s net income for the period was $500m. Agency Emarketer predicted Facebook would achieve $4.05bn in global revenues last year compared with its estimate of $1.86bn in 2010, primarily from display advertising and the rest from its virtual currency. Once Facebook registers its intention to list, however, such speculation will be over as its figures will become more public.
*In the 2007 annual report on its website, Interpublic said: "We will also continue to support and develop leadingedge specialist digital capabilities such as R/GA, to build alliances with technology companies such as Facebook and Joost, and to deliver thought leadership in digital marketing with initiatives such as our Emerging Media Lab."