Saturday, February 4, 2012
Tan: How I made money from Facebook
Friendster was among the first social networking websites. It preceded MySpace and Facebook. Starting operations in 2003, Friendster found the going tough and lost money for years.
The company continued to raise but spent money aggressively. In running up losses, Friendster had, nonetheless, built up a base of 140 million registered users, of which 40 million were active.
Vincent Tan said the losses then stemmed from Friendster not monetising its user base. Finding it hard to make money from its users, it was losing an average of US$10mil a year.
Eventually, the patience of the owners and investors in Friendster wore thin and they wanted to exit the business. Friendster then called for a process to sell the business and now Friendster CEO, Ganesh Kumar Bangah, who was then working with Tan, informed him that Friendster was for sale.
“I asked for the numbers and found that 140 million registered users and 40 million active users was interesting. If we could make them spend some money, maybe Friendster would be a good investment. Of course, the downside was the business will continue to lose US$10mil a year,” he said.
Vincent Tan said the owners of Friendster initially wanted US$100mil for the business but with losses mounting, he knew no one would pay that much for the company. “At that time, Facebook wanted to buy Friendster’s patents but Facebook was willing to pay US$10mil cash and later increased it to US$20mil cash.”
Tan was made to understand then that the owners felt that taking US$20mil only to lose US$10mil a year will soon see that cash vanish and then decided to accept US$40mil for Friendster but wanted a quick sale. “They gave the potential buyers about a week to decide. Many people were looking, including large firms from China and Japan, at Friendster.
“They were much larger than MOL but with the owners of Friendster needing a fast sale, I told Ganesh to do a quick due diligence on Friendster.
“We took two days for the due diligence and made a bid. We said since Friendster owed people US$2mil, we offered US$38mil.
“With other potential buyers doing their due diligence, I told them that if they accepted US$38mil, we will do the deal right away. They accepted our proposal,” said Tan.
After buying Friendster in 2008, Tan then turned his attention to Facebook, which remained interested in Friendster’s patents and whose offer of US$20mil cash for the technology rights was still on the table. “We had a conference call with the people at Facebook. I accepted their price but I wanted shares.”
Facebook officials told him that Mark Zuckerberg, the boss of Facebook, did not want to dilute the shares in the company but Tan stood firm and said “if there was no shares, forget it”.
Tan insisted on getting shares in Facebook because he felt the company will be big in the future. Finally, Zuckerberg agreed to a share exchange for the patents and Tan got his 700,000 shares. His shares have grown to 3.5 million following a 5-for-1 split in Facebook’s shares before the IPO process. - StarBiz
Labels: commercialisation, patent, valuation
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