Nobody is going to be surprised that top shelf investors seized the opportunity to put some money to work inside LinkedIn, nor will they be surprised that LinkedIn, though profitable, is taking capital to further propel its growth.
What will certainly surprise the skeptics is the $1 billion valuation — at a time when the bloom seemed to be off the valuation rose for social networking sites. I saw someone quoted recently (on Techcrunch? Can’t remember) that Facebook is not worth the$240 million investment Microsoft made in Facebook. The 1.6% stake Microsoft bought valued Facebook at a cool $15 billion.
I have no trouble with the LinkedIn valuation because they are doing what comparatively few other sites are doing: Delivering real value to their audience. The value per member — approximately $44 assuming 23 million members — is not out of line with other deals we have seen in the social networking space. Forrester’s Charlene Li blogged on this in March, quoting the NewsCorp/MySpace deal in 2005 at $27.62/user and the AOL/Bebo sale earlier this year at $21.25/member. In my opinion, LinkedIn has two significant advantages that justify the premium valuation: A more attractive demographic and a value proposition that its members will pay for. Bain Capital must see that.
The audience is the source of value, and companies that can attract and engage the right audiences will find numerous ways to capitalize. It’s early days for social media monetization.
I said in my April post here that if LinkedIn “came to me tomorrow and said I have to pay to maintain the relationship, I’d do it in an instant.” The valuation set by Bain Capital and its supporting cast suggests there are a lot of others that share my enthusiasm!