By Joseph Menn in San Francisco and Francesco Guerrera and Shannon Bond in New York
Published: January 3 2011 13:42 | Last updated: January 3 2011 19:37
Facebook has raised $500m for further expansion from Goldman Sachs and Russian investor Digital Sky Technologies in a deal that values the dominant social network at $50bn.
That valuation, which implies Facebook is now worth more than Time Warner or Yahoo, is about double the amount indicated by private sales of the company’s stock on secondary markets just five months ago.
People involved said on Monday that Goldman was providing $375m and DST $125m. All the money will go to Facebook itself and none to staff, who have been able to take part in some past transactions. The deal puts a value of $100 on each of Facebook’s 500m users.
Facebook, founded by 26-year-old billionaire Mark Zuckerberg, passed Google as the most-visited website in the US in 2010, a recent report from research firm Experian Hitwise said. People close to Facebook said that it could generate $2bn of revenue this year.
Goldman’s new role, which includes a plan to raise an additional $1.5bn from outside investors, puts it in prime position to lead an IPO that Facebook executives have said could come in 2012. Facebook, Goldman and DST all declined to comment.
DST bought a 2 per cent stake in Facebook for $200m in 2009 and is understood to have increased its holding to about 10 per cent by buying shares from Facebook employees before its latest investment.
In earlier interviews, DST executives said that they saw their mission as getting as much cash as desired to its companies whenever those firms wanted it. DST is also participating in a big new round of financing for Groupon, which is aiming to take in $950m and is likely to go public this year.
Facebook began its latest fundraising by speaking to Moscow-based DST, which has many Goldman veterans on staff, and then expanded the talks to include the bank, the people involved in the deal said.
Goldman’s move comes in the face of concern from regulators about the increasingly significant secondary market for private company shares and about direct investments by banks.
Securities and Exchange Commission rules require companies with 500 investors or more to make public disclosures, and it has begun looking into whether some of the most heavily traded private companies are improperly avoiding that requirement.
In Goldman’s view it will act as a single investor, as venture capital firms act on their own even if they have hundreds of limited partners who share in the investment’s results. “This is not the first time they are doing this,” said someone involved in the deal, adding that the group was confident it would pass the SEC muster.
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A facebook IPO will mean that Zuckerberg loses some control of the company and has to face up to tigher scrutiny from the Securities and Exchange commission, the Stock market watchdog. On the other hand the revenue that could be raised as a source of inorganic funding could open the door for untold spending power.