Billion-Dollar Baby Dot-Coms

Billion-Dollar Baby Dot-Coms? Uh-Oh, Not Again - New York Times :: GARY RIVLIN: "JIM BREYER, a top Silicon Valley venture capitalist, knows that the $12.2 million his firm paid for a modest stake in Facebook, an online service immensely popular with the college set, is a lot of money. So he's not surprised that some are pointing to that deal as proof that inflation is back in the venture world - a development that can't help but stir memories of the late 1990's.

Venture capital, to be sure, is a sport played best by risk takers who understand that the cost of getting into a deal doesn't matter nearly as much as the price someone else - whether a larger company or investors through an initial public offering - is willing to pay at the exit. There were plenty of V.C.'s who once declared absurd the $4 million that Kleiner Perkins Caufield & Byers paid in 1994 for roughly a quarter of Netscape. That, of course, proved to be one of the more lucrative venture investments of the Internet era.

And there was no shortage of naysayers in 1999, when Kleiner Perkins and a second firm, Sequoia Capital, spent nearly $25 million combined to buy 10 percent each in Google - an ownership stake that eventually would be worth multiple billions. Among venture capitalists it's a poorly kept secret that Facebook's valuation came in just shy of $100 million. Assuming that's true (Mr. Breyer declined to say), Accel paid a little more than $12 million for roughly a 15 percent share.

Which is a very steep price for a company that even Mr. Breyer acknowledges is a risky venture. The company says that 3.6 million collegians are currently registered at facebook.com to use this online equivalent of the "meet" book that many colleges issue to their freshmen.

The high price of the Facebook deal is hardly an isolated case. Tongues were flapping this week over the $19.5 million that three venture firms invested in Jobster, a recruiting service used by corporate clients.

And they were wagging two weeks earlier, when word spread that a well-heeled group of private investors were set to invest in Odeo, a start-up hoping to cash in on the podcasting phenomenon - until the venture firm Charles River Ventures proved willing to offer three times as rich a price.

Some angel investors, including Mitchell D. Kapor, the founder of Lotus Development, still chose to invest in Odeo. For one thing, Mr. Kapor said, "the original valuation was a real bargain, maybe even a steal." For another, "it's not the entry value which matters as much as the exit value."

In other words, if Odeo goes public, or if a larger company pays a handsome premium to buy it, only those scared off by the high price of admission will harbor regrets.

Few in the venture world seem to doubt that inflation has hit the industry. Valuations remain flat, according to data provided by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association, but their numbers represent the first three months of 2005. "