Image via WikipediaDigitalSky Technologies, a prominent Internet investor in Russia and Europe, has invested $200 million in FaceBook, in return for a 1.96% stake, effectively implying that the company's valuation is $10 billion. Can we call this a fair value of the company, especially given that Microsoft earlier invested $240 million for a 1.6% stake, pegging the company's value at $15 billion? FaceBook had about 307 million visitors in April, implying a $32.57 per visitor valuation. At Accuserve, our read is that when companies and individuals invest in companies to acquire lower stake or invest in small amounts, they are willing psychologically to accept enhanced valuations. When the stakes are small, so to speak, the risk associated with not achieving that enhanced valuation is rather small, in the minds of the investor. When you have a lot of money in a company, the risks of not achieving that valuation becomes quite big. The other issue is how the investor gauges exit routes. In IPO markets, the listing price requires high disclosure requirements - implying a valuation that could be significantly less than when exiting in M&A markets. Perhaps, the investors realize that Facebook may only opt for a private exit, where such high valuations can be maintained with relatively less scrutiny. At Accuserve, our philosophy has always been to look beyond the numbers. Several Internet related transactions require a reverse thinking of established valuation concepts. For instance, valuation specialists argue that when looking at minority investments, a discount be applied on the fair value of comparable transactions that happened at a so-called premium. We argue differently for Internet companies. We argue that, in the Internet industry, several transactions have occurred in a flipped manner i.e. majority stake acquisitions have happened at a discount to valuations seen during minority stake investments. The primary goal when an enhanced valuation is being assigned during early stages of a company's development is for the founders to retain control of the company and not give away so much that it disincentivizes the founders. We have to account for this thinking and this is best done by thinking about Internet valuations in a different way.