Facebook/friendfeed Thoughts
I haven’t been able to get my hands on the purchase agreement but the WSJ reported the $50m purchase price was $15m in cash and the rest in equity installments that vest over time. This is a similar mix to what was offered to Twitter earlier this year. Twitter rejected Facebook’s advances because they didnt want a bunch of illiquid securities they would have to pay taxes on.
If the equity installments are tied to friendfeed’s founders and other employees continued employment with Facebook, then the stock might be taxable as compensation income (although the individual’s basis would carry over subject to Section 83) as opposed to installment payments for the assets. If that’s the case I imagine the $15m in cash was to cash out the VC (Benchmark) and pay the taxes.
Please write in the comments if you have seen any of these details posted somewhere. This doesn’t seem like the most tax efficient structure if the assets of friendfeed were capital assets held longer than a year.
UPDATE 8/14
VentureBeat is reporting that the deal was for $47.5m and that Benchmark took stock in the deal. That lends some support that the cash might have been to pay taxes.
