A "Private IPO" for Facebook?

Facebook’s valuation climbs ever higher as a few rich investors get a slice of the blockbuster social network.

Erica Naonearchive page

January 3, 2011

A new set of investments in Facebook from Goldman Sachs and the Russian investor Digital Sky Technologies today pushed the company’s valuation to a stunning $50 billion. The Financial Times reports:

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.

Some have suggested that the deal could increase the pressure for Facebook to take the company public. The New York Times’s Dealbook writes:

The new investment comes as the Securities and Exchange Commission has begun an inquiry into the increasingly hot private market for shares in Internet companies, including Facebook, Twitter, the gaming site Zynga and LinkedIn, an online professional networking site. Some experts suggest the inquiry is focused on whether certain companies are improperly using the private market to get around public disclosure requirements.
The deal could add pressure on Facebook to go public even as its executives have resisted. The popularity of shares of Microsoft and Google in the private market ultimately pressured them to pursue initial public offerings.

Indeed, there’s already been some criticism of the way Goldman Sachs’ investment is reportedly set up. According to Henry Blodget at Silicon Alley Insider:
One of the reasons Goldman just invested in Facebook was to create the ability for its clients to invest in Facebook–through a “special purpose vehicle”. Specifically, Goldman has bought the right to buy $1.5 billion of Facebook stock for its clients via a single private investment entity. Goldman’s clients who want to invest in Facebook will be given shares in the investment entity. And if the value of those shares rises, they’ll cash in.
Voila! The private Facebook IPO. Just for Goldman clients.
Facebook has increased the effectiveness of its targeted advertising in recent months. By some estimates, these ads already bring in around $2 billion in revenue annually.