Goldman Sachs and Digital Sky Technologies (DST), a Russian investment firm, have invested $500 million in Facebook, in a deal that values the world’s leading no.1 virtual social networking company at $50 billion.
Spokespeople for the social network, Facebook, declined to comment on this transaction as reported by The New York Times, which cited unnamed individuals involved in the transaction.
Clearly representative of the increasingly high investment value attached by investors to the new breed of private Web companies, this deal gives Zuckerberg’s Facebook a much higher valuation than established Internet giants such as Yahoo Inc and eBay Inc.
The Deal – Goldman Sachs + Facebook
This deal brought in $450 million into the company from Goldman Sachs, while Digital Sky Technologies invested $50 million, according to the Times. The deal includes a clause giving Goldman Sachs the right to sell up to $75 million of its stake to Digital Sky Technologies (DST).
With Digital Sky Technologies (DST) having previously invested $200 million in Facebook, with an estimated valuation of $10 billion during the late spring of 2009, this recent transaction has effectively increased this stake fivefold, with the social network now valued at $50 billion. It is not clear whether Digital Sky Technologies’ (DST) recent $50 million share in Facebook shares has anything to do with the Russian company’s previous plan to buy $100 million of the Facebook’s stock, as an addition to the 2009 investment.
With the Securities and Exchange Commission beginning to look into the trading of shares in private companies such as Facebook, the timing of this deal couldn’t be better.
Investors Perspective – Goldman Sachs & Digital Sky Technologies (DST)
With an estimated half a billion users worldwide and believed by many as being set to become the next Google, Facebook, with investors clamoring to get a piece of the company, has shown little interest in floating shares to the public.
Jeremy Liew, managing director at venture capital firm Lightspeed Venture Partners, which is not a Facebook investor, said that by raising money from private investors, Facebook would be able to reap many of the benefits that traditionally require undertaking an initial public offering without facing the added scrutiny of the public market. “I don’t think it’s a replacement for a public offering, I just think it’s a mechanism for delaying it,” said Liew.
Among the key benefits of raising money privately is the ability for early employees to cash out some of their stock holdings. In the summer of 2009, Facebook arranged for Digital Sky Technologies (DST) to purchase another $100 million of common shares from its employees in addition to the $200 million that Digital Sky Technologies (DST) put into Facebook at a $10 billion valuation.
The real speculation is: Will Goldman Sach’s involvement with Facebook increase pressure for the company to have an initial public offering sooner than previously planned ?