Facebook Venture Capital

Comparative Economics

Mary Eng

9-9-10

Venture capital is an essential part of th growth of creative and technical sectors. A look
at the venture capital and other capital sources for the facebook company will provide an
interesting subject for investigation. As facebook, inc. has topped the social networking gamut
in popularity, it’s innovation and company strategy has relevance for many industries who
either rely on facebook fro marketing or use it as a part of an integrative internet strategy.
While the average facebook user may have no concern for the financial underpinnings of the
tech phenomenon, a look at the financing structure and company history may have a broader
relevance for understanding the motivations behind various finance groups and investors.
In this paper I plan to explore the relevance of the National Venture Capital Association, a lobby
and trade group, the accel venture capital infusion, and more recent capital assets as provided
by elevation partners. Techcrunch, the leading technology blog, has a whole page devoted to
facebook. Their very excellent crunchbase provides a tracebale link to investor time lines and
profiles of start-ups of all sizes and the investment history of individual angel investors and
the investors in venture capital firms. It is possible through hyperlink to understand a graph of
investment in a chronological schema, or a branching network.
other amazing sources of tech info are
The Financial Times in April 2010 profiled the corporate strategy to reach out for advertising
links with a new program the “like” feature in which users can express themselves via “liking”
various brands. Programs like this which seek to divert attention to demi-adverts seek to
monetize Facebook, an ultimate duty for the VC investors. The digital gift economy or the
facebook dollars are other such schemes towards infusing the dreamy start-up with a measure
of profitability.
Facebook as an entity has a story which is a common myth known to many. There are
numerous websites detailing the many issues which beset the industry behemoth.
It is necessary to distinguish the difference between angel investors and venture capital
investing. Angel investors have a solid amount of funds they want to bestow upon a promising
firm. Venture capitalists pool their funds in a venture capital network, which distributes the risk
of their investment across many firms.
The venture capitalist sees the risk in the tech start-up as a worthy risk. Many tech
entrepreneurs who sell their successful start-ups immediately pour their financial capital
into new ventures. Noteworthy among those are Paypal’s Peter Theil a Facebook angel
investor, who now sits at the hed of Clarium Capital. The atmosphere of high risk is mitigated
by the actual enjoyment of the flourishing of new technological trends. The structure of tech
investment
Accel was one of the first most significant firms to see the potential in Facebook and put major
investments towarss its growth. It is important to note that Facebook did not come out of the
red until September 2009. A look at Accel’ investment portfolio will reveal numerous lesser
known companies in the tech sector.
The early 2000’s brought infusions of cash into the Silicon Valley landscape. Many ventures
were fiscally disastrous. A look at venture capital climates will still find that the cash infusion
made possible in the United States exceeds many other economic climates. Paul Carr’s spoof
of a book, Bringing Nothing to the Party, details the struggles of an aspiring tech start up’s quest
for venture capital. The company, a social networking site for hip young Londoners, faces
immanent financial peril. Carr’s portrait of the London VC scene pits the fledgling tech scene
as far inferior to the stateside tech riches. Another approach to measuring the atmosphere
for tech start-ups are the amount of governmental participation in fostering growth. In Finland
for instance, the government when faced with depopulation and a bleakly performing agrarian
economy, infused cash into the tech sectors and subsidized advanced tech degress and
education which helped the young Nokia ascend the charts in the pre-smart phone cell phone
revolution. And while capital investments may be exceptional in the United States, whether or
not a host of political factors are entirely hospitable is debatable.
everything from labor costs to investment visa availability pertain to the flourishing of tech start-
ups. Venture capitalists must consider these factors as well as possible legal threats which will
undermine their business.
What makes Facebook such an interesting company to follow, is that not only have they
anticipated cultural trends but they have shaped them, and they have quickly adapted as new
technologies shaped the zeitgeist. The Twitterification of their interface rapidly followed the
Twitter ascendancy, which in a sense showed a loyalty and duty to their investors, to keep the
company at the cutting edge for as long as possible.
The recent “Google Me” medfia buzz has alerted the tech community that there may be a
very imminant demise of the Facebook, even with its 500 milion strong. The company seeks
to return the VC investment as it serves as a model for sociological transitions and adapts
to a host of factors including the viability of ad revenue, the crunchability of statistics for ad
revenue microcash, the sale of raw data, and or government support or subsidy, and decline in
trendiness.
Accel, as one of the most premier investment companies involved in tech growth, has a close
relationship with the NVCA which rewarded Jim Swartz with a Lifetime achievment award. The
NVCA has shared several figures from the Accel group, and holds their interest and future at
heart as it represents over 400 similarly situated firms. The NVCA lobbies the US Congress
for more easily available investment Visas. The seek to influence the Federal Communications
COmmission regulations for the benefit of their frims.
When following the trail of Facebook capital investment, it is important to ask whether any of
the investment firms have any particular political or other aims. Do they see Facebook as a
valuable tool for civic surveillance. As Facebook hosts a panoply viewpoints, no one viewpoint
predominates, but certain overarching norms prevail: namely, recession of privacy norms,
increasing levels of participatory surveillance, increasing mythologizing of the cult of identity.
In February 2010, the Electronics Frontiers Foundation sued the United States federal
government for failing to disclose the level of their utilization of social networking for surveillance
or other purposes. Might it be possible to show that the state has a direct interest in supporting
the growth of the social networking phenomenon?
The company In-Q-Tel is a venture capital firm directly and officially and openly linked to the
development of technologies useful for the Central Intelligence Agency. A lot of their capital
investment is geared towards the development of advanced technologies such as speech
recognition. The latest notice on their Crunchbase profile shows their investment in an
aggregation service which allows corporate interests to watch and compute the success of their
social network advertising penetration.
http://techcrunch.com/2010/01/13/visible-technologies-raises-a-whopping-22-million-for-social-
media-monitoring-software/
The social media monitoring software in a sense becomes a derivative industry which crunches
a much larger data base, of which Facebook is only a part.

Bono Rockstar is a primary investor in the Elevation Partners firm which provided a substantial
infusion to Facebook in June 2010. According to British tech mag The Register, the 120M
venture capital infusion gives Elevation a mere .05% ownership in Facebook. What motivation
would the Bono empire have in facebook? Facebook serves a high level of traffic. For some
users, the rest of the internet does not exist. Potential Ad revenue schemes, and a stadium full
of adherents might be more suseptible to the Bono humanitarian agenda. In a certain sense we
could easily hypothesize that Bono’s Facebook share is geared towards advancing his larger
philosophical agenda.

The Facebook venture capital investigation might also beg the question, why invest in a
company that has not yet turned a profit?
What can other start-ups gain from this finance model? How can new companies compete for
Venture Capital investment or the horors bestowed by angel investors? How can tech start-ups
protect their capital investment from crippling litigation? Many a firm finds itself in protracted
litigation, which can either slow, or sometimes halt growth altogether. Indeed Facebook is
currently being sued by a software programming contractor who alleges he found a contract
entitling him to 85% of Facebook. As Richard Susskind details in the book The End of Lawyers
the future of many tech companies will involve engaging legal services on a per anum basis,
rather than after costly litigation has ensued. And then the law firms will conduct extensive
review of all accounts and potential intellectual property vulnerabilities prior to litigation, so as
to head off unnecessary squabbles and be prepared for any legal assault. Susskind points
out that the emerging technological sector has a new kind of need for legal services, and the
legal industry is adapting to suit their needs. A company which is financed by the good graces
of angel investment and VC does not need to involve the company in unecessary protracted
litigation. So indirectly the comprehensive management of a company must involve a legal risk
analysis and the engagement of appropriate preventative legal services. Mark Howitson, a
Silicon Valley attorney has represented facebook as deputy general legal counsel since 2007.

A general survey of Facebook and cyberlaw questions, which often involve the confluence
of sociological issues, investment, government involvement, and citizen participation can be
found at the Center for Internet ans Society, hosted by Stanford University’s cyberlaw domain.
The Berkman Center at Harvard is the east coast cyberlaw counterpart and hosts conferences
joining the worlds of programmers, the developers of the DARPA net, the future of internet
micro-cash, crowd sourcing, and other exciting trends in Internet as they take place across an
economic and regulatory landscape.
Remarkably, unexpected consequences of the Facebook cultural revolution have turned
facebook into a digital courtroom to a certain extent. Australia has ruled Facebook to be
an adequate way to serve summons for a lawsuit notification. Numerous instances of law
enforcement using facebook to establish identity or whereabouts of suspects are known. In
a certain sense, government could not live without Facebook, or some equivalent. Online
predators are seduced through various internet media channels, of which Facebook, is but one.