Goldman Invests in Facebook, Bringing Value to $50 Billion

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Facebook is now valued at $50 billion, The New York Times reports, after an investment of $450 million from Goldman Sachs and $50 million from a Russian firm with an existing stake in the social networking company. The deal makes Facebook worth more than public companies like Yahoo and Time Warner (at least on the private market), and may double CEO Mark Zuckerberg's personal fortune of $6.9 billion.

The investment comes shortly after the Securities and Exchange Commission launched an inquiry into "secondary trading markets" for shares of private tech companies like Facebook. Some analysts wonder whether these private exchanges could drive the number of Facebook shareholders to 500 or more, forcing the company to either publicly report financial information per SEC rules or go public. Goldman, which plans to raise as much as $1.5 billion more for Facebook from its high-net-worth clients, may be able to bypass SEC regulations if it successfully argues that its investment pool constitutes only one investor.

The deal raises questions about what Facebook will do with the money and stirs more speculation about whether the company is poised to launch an initial public offering:

  • Facebook Will Use the Money for Growth, predicts Ben Parr at Mashable. The company will probably first use its $2 billion in new funding to allow some of its current investors and employees to cash out their stakes, he explains, but then it will likely turn to growth by purchasing a Menlo Park campus, ramping up hiring, funding more acquisitions, and expanding into new markets. "The company is on pace to serve 1 trillion display ads per year," Parr notes, "but it could make so much more money with a competitor to Google AdSense and AdWords."
  • The Deal Is a Head-Scratcher, states Staci D. Kramer at paidContent, given the SEC inquiry into secondary markets: "On the one hand, it's a way to raise the kind of money Facebook needs while avoiding an IPO. On the other, it's perilously close to a distinction without a difference if hundreds, possibly thousands, of people can invest [in Facebook without violating the SEC's 500-shareholder rule]. It’s almost too clever."
  • Facebook IPO May Not Be Imminent, cautions Dan Primack at Fortune, even if the SEC rules that the company has violated the 500-shareholder rule and must disclose its financials:
Facebook clearly has no need for capital (a prime motivator for IPOs), has plenty of liquidity options for existing shareholders and still could avoid many public company hassles outside of the financial filings (no need to meet with analysts or hedge funds, do quarterly earnings calls, etc). In fact, one even could argue this deal makes an IPO less imminent.
  • But It May Not Be All That Far Off, explain Andrew Ross Sorkin and Evelyn M. Rusli at the Times. They note that sources involved in the fundraising effort indicate that Facebook’s board intends to consider a public offering in 2012.
  • Goldman Is Positioning Itself to Take Facebook Public, contends Felix Salmon at Reuters:

[Goldman] has probably bought itself the IPO mandate, which could easily generate hundreds of millions of dollars in fee income. It has also become the only investment bank which can give its rich-people clients a coveted pre-IPO stake in Facebook: the extra cachet that brings and the possible extra clients, make this investment a no-brainer. Facebook doesn’t need to stay worth $50 billion forever--Goldman just needs to engineer an IPO valuation somewhere north of that, then exit quietly in the public markets. And that is surely within its abilities.

This article is from the archive of our partner The Wire.