Social services
At the start of the year it was reported that giant US investment bank Goldman Sachs was investing $500 million on social networking site Facebook, at a valuation of $50 billion - i.e. one percent of the company.
At the same time Goldman also acted as a broker, via a ‘special purpose vehicle' (SPV) to offer a billion dollars worth of Facebook stock to investors. As Facebook is not a public company, this latter move was contentious because there are laws in the US compelling companies to make their financial records public once they have 500 shareholders.
Goldman thought it had cunningly got round this law with the SPV, because only it would be registered as a shareholder, despite selling on the stock to loads of others - seems like a silly loophole to us. But in the end it had to limit the re-offering of Facebook stock to overseas investors only.
All of this was officially confirmed by Facebook in a recent press release, which commenced: "Facebook today announced it has raised U.S. $1.5 billion at a valuation of approximately $50 billion."
"Our business continues to perform well, and we are pleased to be able to bolster our cash position with this new financing," said David Ebersman, Facebook's CFO. "With this investment completed, we now have greater financial flexibility to explore whatever opportunities lie ahead." Financial flexibility - that's one way of putting it.
In the release, Facebook addressed the 500 shareholder issue: "Even before the investment from Goldman Sachs, Facebook had expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012," it said.
Presumably, therefore, there were other reasons for Goldman's move. Regardless, the $50 million valuation puts Facebook ahead of tech giants such as Nokia, if we compare it to their market cap, and values it at almost double that of Dell. Impressive.
