The “Microsoft invest in Facebook” is great example of how to “inflate value”. The morons of the world saw:
Microsoft invests in Facebook, $240m for 1.6% – which is a $15bn valuation!

http://www.nytimes.com/2007/10/25/technology/24cnd-facebook.html

This is my synopsis of what really transpired:
1. FACT: Facebook was shopping to do an exclusive deal with either Google or Microsoft to sell it’s ad space thru’ 2011
2. FACT: It became a bidding war
3. My view: MSFT won that bidding war, agreeing to buy $240m worth of space from Facebook
4. My view: Some clever CFO or finance guy at Facebook then came up with a proposal:
a) $240m in revenue over 4 years = $60m per year = which values facebook at $180m (if @ 15% profitability), which is way too small.
b) For MSFT, $60m out of their pocket per year, at their PE of 20 (@ Nov2007) is a reduction in Mkt cap of $1.2bn!
c) So MSFT, instead of paying us $240m, you buy 1.6% of stock for $240m and we’ll give you the space for free. That way, you buy an asset (rather than reducing your net income) AND you will end up with 1.6% of our company. Much better deal for you (oh, and it values us at $15bn, which will cause other morons to invest, which will increase your 1.6% value, so you’ll end up getting the adspace at no cost!)

Any investor worth his salt would steer clear of ever investing in them.