Don't let it be you.

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction. The deal makes Facebook now worth more than companies like eBay, Yahoo and Time Warner.

Riiight.

This, of course, isn't because Facebook actually needs $500 million, right?  It was all a "strategic" investment?  The board simply took the money and gave up a stake because..... they're nice guys?

Uh, no.

Of course the rattling about an IPO will now ensue.  After all, if it doesn't then people will start to ask very pointed (and difficult-to-answer) questions - like, for instance, "why did you give up some percentage of control of the company for that $500 million if you didn't really need it?"

Everyone that starts a business eventually wonders about monetizing what they've built.  But there's a difference between exiting because you want to exit and exiting because you need to exit in some form or fashion in order to actually make anything. Paper "valuations" of closely-held companies without public balance sheets and audited financials you can look at and ask questions of are difficult to justify - usually because the so-called "value" isn't really there.

The question that has to be asked of any business is how do you make money?  That is, how do you generate revenue and from that revenue, how much of it do you get to keep, after all expenses - including commitments to pay other people you entered into (to service, for example, salaries and debt.)

There has been an explosion in user interest in social media sites. The social buying site Groupon, which recently rejected a $6 billion takeover bid from Google, is in the process of raising as much as $950 million from major institutional investors, at a valuation near $5 billion, according to people briefed on the matter who were not authorized to speak publicly.

Again: How do you make money?

Anyone remember Myspace?  It was bought at a ridiculous valuation.  How much money has it made for its owners? Hmmmm..... anything?

Don't get me wrong.  I have a Facebook account (is there anyone who doesn't) but I don't see how you monetize it.  With a valuation of $50 billion the assumption is that the estimated 500 million active Facebook users will bring $100 in monetizable activity to the value of the firm - after expenses.  Let's presume that's over a five year time horizon (an eternity in the digital world, and too long - but I'll be kind.)  Is there $20/user/year of profit (not revenue) available?  I don't think so.

Adding to this is the fact that there's no direct monetization on the site at all - and any attempt to add is is likely to wind up blowing up in their face.  This leaves them with advertising - and unfortunately for Facebook, you're not really there to have your page taken over by ads.  Indeed, on my News Feed - the typical top page that people look at, there's just one little ad on the right side, and it's typically not visible at the screen size I use.  I can't recall ever clicking on an ad displayed on Facebook.

My view: They need the money.  Of course I can't prove that, because, well, there are no public financials.  Go ahead and believe otherwise.  Go over to Second Market if you want (and can qualify to trade there - I do qualify but you wouldn't catch me dead buying stock in a privately-held company where I had no access to the internals of the firm or its financials!) or even better, roll the dice with Goldman, who intends to (they say) create an "SPV" to evade SEC regulations on small firms with more than 500 shareholders (again, has anyone seen a cop somewhere?  Is that not clear declaration of an intent to go around the law?)

In any event you can bet the hypester machine on this deal will be locked on overdrive, otherwise known as "full retard", right up until you get the pump - at which point it'll be dumped.  Whether the dump will come in the near future or whether they'll actually manage to keep the hype machine going all the way through an IPO (and you'll "win" your bet, if you place one) is difficult to determine

This much I do know - it's easy to be popular when you don't charge money to come in the door, and Goldman will figure out a way to get millions in fees - whether the company is ultimately worth anything or not.

Turning that horde of people on Facebook into money is a much-more difficult proposition, and one that Facebook and their business model, from what I can see, has zero support for thus far.