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Take the Money and Run?

News Corp.’s 2005 purchase of MySpace for $580 million and Google’s recent acquisition of YouTube for $1.76 billion have illustrated that established companies are willing to invest big bucks in social media. So much money is being thrown at Web 2.0 startups that the (usually young) founders of innovative Internet startups find themselves in an enviable position. Like farmers in an oil-rich region, entrepreneurs in online media, possess properties that large entities want to purchase and fully exploit.

News Corp.’s 2005 purchase of MySpace for $580 million and Google’s recent acquisition of YouTube for $1.76 billion have illustrated that established companies are willing to invest big bucks in social media. So much money is being thrown at Web 2.0 startups that the (usually young) founders of innovative Internet startups find themselves in an enviable position. Like farmers in an oil-rich region, entrepreneurs in online media, possess properties that large entities want to purchase and fully exploit.

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According to a report by Thomson Financial and the National Venture Capital Asociation, in 2006 the average sale price of a VC-backed start-up was $114 million — the highest it has been since the free-spending madness of the dot-com hey-day. Yet, while there may be gold in them thar’ hills, social networking has not yet been fully monetized. Companies who buy a social networking or other Web 2.0 site are paying for what they see as the site’s potential.

Web 2.0 founders can capitalize on their start-ups either by selling a larger organization on their site’s potential, or by hang onto their site in the hopes of realizing that potential on their own. Mark Zuckerberg, the 22-year-old founder of Facebook finds himself at the build-or-sell crossroads again, after spurning a $1 billion offer from Yahoo last year.

Facebook, which has raised $38.5 million since Zuckerberg started the social-networking site in 2004, offers a buyer more than just potential. With 17 million registered users, who look at about 1 billion Web pages per day, Facebook is attractive to advertisers. Through a deal with Microsoft, Facebook will earn somewhere in the range of $200 million in ad revenue through 2008.

Yet, if Zuckerberg, who is believed to control one-third of Facebook’s stock, could sell the company for more than a billion dollars, should he? Is that kind of money for a fledgling enterprise a sign of a second bubble? Should Zuckerberg get out while the getting’s good? Or should he hang on to his brain-child and ride the Web 2.0 wave on his own?

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