overstanding valuations of private companies.

since microsoft's $240mm investment in facebook last october, i've heard many gasps and many "how the hell can facebook be worth $15 billion?!"s. as an investor in private companies, i know that investments are often structured with a liquidation preference, which provides the investor downside protection. for those who are not familiar with this concept, "jddavis" posted a great (and short) explanation on techcrunch, in response to gasps at ning's recently ascribed valuation of $500mm. early stage investor brad feld posted a great explanation with more detail back in July '04 as well.

worry not, the $378mm invested in facebook to date will be money-good even if the $15 billion valuation falls by a few billion (or more).