Facebook is readying for an exit

Facebook's Chief Financial Officer, Gideon Yu, just left the company.That's the 11th exec to leave the company in less than 2 years!

I'll skip the speculation as to why he left. I don't really care why.

What's interesting is that Gideon Yu failed to raise money at Facebook recently, which is rather surprising, and what this implies.

Who is to blame?

I wouldn't blame it on the guy's skills. He is the man who raised the $240M investment from Microsoft at a $15Bn valuation, and was at YouTube before the Google acquisition.

You would think that for the largest social network in the world, potential investors aren't exactly hard to come by.

What's more difficult is justifying your valuation. Apparently, Facebook was scouting for money in Dubai, at a value of $3.7Bn or less, and failed.

So the markets in the West and in Dubai are not willing to invest in the network, in spite of the capable team, at that value.

Even its investors are not willing to reinvest.

Readying for the IPO

This is a very unique situation. The company has been overvalued by Microsoft and is now attempting to sell parts of itself at ~25% of that value, less than 2 years later. In other words, the people who backed the company have seen their investment's prospects divided by 4.

And this value is likely to go down even more if the company cannot monetize and find money soon.

The social network is clearly readying for an IPO: “We have retained Spencer Stuart to lead our search for a new CFO and will be looking for someone with public company experience.” It would be difficult to be more explicit than this.

It also explains a lot of the company's recent behavior:

• the sudden change in design, with added space for advertising
• the growth in ad inventory
• making pages look like profiles
• announcements such as "the public will be able to vote on the terms of use"

These are all very good moves to appease the public regarding future monetization.

In this light, claims such as “Facebook’s financials are strong and that the company expects revenue growth of at least 70% in 2009 compared with 2008 revenue - far above the estimates of some outside analysts” sound more like courting the public and less like convincing the press.

What happens next?

Let's say Facebook does an IPO in the coming months. What happens then?

I see 2 possibilities:

1) Facebook manages to sustain itself and raise enough money

In this scenario, the company manages to convince people that they are a sustainable company with growing prospects for profits.

Facebook manages to keep its user base by making itself a key partner for future startups through Facebook Connect, and uses this as a leverage for monetization.

Investors are appeased and Mark Zuckerberg retires to a small island in the Pacific.

2) Facebook is bought

Facebook fails to convince the market, and does not manage to build enough monetization in the site. Value declines, and the company is forced to sell to a larger company.

With its 200M-strong user base and its closed social graph, the company is a very attractive acquisition target.

A likely candidate for this scenario is of course Microsoft, which could use the social network to increase its reach in search and advertising.

What do you think about this new development? Conversation is encouraged!