Facebook’s acqui-hires–$24m on four companies in H1 2012

By August 1, 2012Exits, Facebook

In its quarterly filing yesterday Facebook disclosed that it spent $24m on ‘talent focused acquisitions’ in the first half of 2012. Techcrunch has done some digging and identified the companies as Tagtile, Glancee, Lightbox and Karma.

This raised two interesting questions for me.

Firstly – can investors make a decent return on businesses that are acquired for their talent?

The indications from this limited data sample are ‘probably not’. Lightbox and Karma had raised money $5.7m between them, making the aggregate exit value of these acqui-hires 4.2x, which tells us that if the investors on average had a 24% stake they would have broken even on these deals. This analysis assumes there was no participating liquidation preference and lumps together companies that have raised money with those that haven’t, but I think it is fair to guess that in aggregate the investors in these companies didn’t get what they set out for. The founders might well have done OK though – there is space in these figures for them to pocket a life changing amount of money and they might have landed a dream job at Facebook with significant upside down the line.

Another way of looking at this data from an investment perspective is to say the average acqui-hire valuation was $6m, which implies that for an investor to make 10x they would need to have invested at $600k post money.

Whichever way you look at it the conclusion is the same – acqui-hire is not a great exit strategy for investors.

Secondly – what sort of companies is Facebook interested in acquiring?

  • Three of the four are mobile companies (which rises to five of the six acquisitions Facebook made in total in H1 2012 if you include the bigger deals Instagram and Face.com)
  • Three of the four were in San Francisco, with one (Lightbox) based here in London (Instagram was also San Francisco, Face.com was Tel Aviv)
  • Data from LinkedIn suggests all four companies had 3-5 employees

The takeaways – Facebook is focused on mobile, and companies like to acquire close to home (nothing new there).

Finally – a brief profile of each of the acqui-hires:

  • Tagtile – a hardware based service which helps local businesses run loyalty programmes
  • Glancee – an app for iPhone, Android, and Facebook that makes it fun and safe to discover people nearby who share friends and interests with you
  • Lightbox – an Android app which syncs the photos on your phone with your social networks and provides cloud hosting of your photos
  • Karma – a social, mobile gifting service