[snewe]

Mark Cuban's statement is only true if the VC financings are simply a buyout of previous investors. Many of Facebook's recent financings were capital injections + buyouts of founder and early VC shares. I don't believe this is the norm. Simply, VCs at round t-1 typically participate in round s > t and if they don't, future investors will not buy them out. If they did, it would simply mean that none of the money going to firms like Twitter and Zynga is used for investment.

[SriniK]

Lot of people including Mark Cuban predicted that Youtube is a sinking boat and that Google made a horrible mistake in buying it. Look at the present situation - youtube is raking in 1B per year.

Any market leader facebook/zynga/twitter with their user base can become a cash cow with enough focus. No one else in the world get internet companies like valley/US does. This is the single most reason every other country's .com company gets traded in nasdaq.

[klochner]

Surely it wouldn't mean much if $100 out of the last round to facebook went to operations with the remaining money cashing out employees and investors, so where's the line?

What if half the round cashes out prior investors?

[dave1619]

Is there any way to find out if prior investors are cashing out or not, and if so how much?

[snewe]

Thinking about this a bit more, Mark Cuban is essentially arguing that recent VC investments are equivalent to the activity that takes place on Second Market and others like it. If that was so, Twitter, Zynga and Facebook would have to buy all those servers and pay their employees out of profits. Of course, most of these VC-backed firms aren't profitable, so VC money must be going to the firm.