Did Parakey Investors Get Screwed?

Posted by Nick O'Neill on September 25th, 2007 11:53 AM

According to Mike Arrington, investors in Parakey (which Facebook acquired in July) may not have gotten the best deal. Apparently, the two founders received significant Facebook stock options while the investors simply got less than $4 million providing a 2x return on their investment. While a 2x return isn’t bad for a 6 month investment, the Facebook stock options may be worth a large amount in the near future.

While Facebook is providing 2x return to companies acquire, they are attempting to get funding at 100 times revenue. I am willing to bet that the VCs in silicon valley are not too happy with Facebook’s strategy. Mike Arrington points out that if VCs in Silicon Valley “don’t see a fair return based on the risk they are bearing, that well oiled machine could come to a grinding halt.” This is something many have been question as one startup after the next gets ridiculous valuations and significant funding for products and services that aren’t generating any cash flow. Enough of the bubble talk though.

The real lesson learned here is that when Google or Microsoft comes to buy out your company, you can expect a nice pay day. When Facebook comes to acquire you, if you have some serious investors in your company, they may not be so happy for you to accept an acquisition offer.

This entry was posted on Tuesday, September 25th, 2007 at 11:53 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.