The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley
Facebook has raised $500 million in new "venture capital" at a $50 billion valuation, according to a report late last night from DealBook. Not sure if the $50 billion is a pre-money or post-money mark, but I'm also not sure if such niggling details matter at such a nose-bleedingly high stratosphere.
What interests me most here are the buyers and the sellers, as they relate to a pair of conversations we had in this space last week: The SEC's inquiry into secondary market trading of private shares, and how this inquiry could impact Facebook's eventual IPO.
DealBook reports that Goldman Sachs (GS) is leading the deal with a $450 million commitment, with the remainder coming from existing Facebook shareholder Digital Sky Technologies (which has a right to buy up to $75 million of Goldman's stake). Nothing too interesting so far. But then we have this:
As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation, people involved in the discussions said, speaking on the condition of anonymity because the transaction was not supposed to be made public until the fund-raising had been completed.
In a rare move, Goldman is planning to create a "special purpose vehicle" to allow its high-net-worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman's proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.
DealBook says that it "unclear whether the S.E.C. will look favorably upon the arrangement."
My understanding of the existing SEC inquiry -- and that's all it is at this point, not an "investigation" -- is that the SEC is interested primarily in two things: (1) Do funds raised to invest in specific companies (i.e., Facebook) qualify as a single investor vis-a-vis the 500-shareholder rule, or does every underlying investor count? (2) Do these funds purport to have non-public financial information upon which their underlying investors can make informed decisions and, if not, are there any investor protection rules being broken (just because you're an accredited investor doesn't mean you can't get taken advantage of)?
On the first question, I don't exactly see how the Goldman "fund" would be much different from the other Facebook-specific funds being floated out there. Given that it isn't a blind capital pool (i.e., give us money, we'll find investments meeting certain general criteria), it is hard for me to understand how Goldman would be acting as anything other than a broker (as opposed to a fund manager). And, as such, I'm curious how/why Goldman and Facebook think this arrangement can avoid the 500-shareholder rule.
The second question actually could be a bit more interesting. One would have to believe that Goldman did, indeed, get a look behind Zuckerberg's financial curtain. It is true that most of the "Facebook funds" do not have access to the company's financials, but we're talking about an investment that could total $2 billion. I just can't imagine that a firm like Goldman is flying blind on so much cash. What remains to be seen, however, is if it provides any of that underlying info to the clients from whom it hopes to raise the $1.5 billion.
If not, then the SEC could have the same concerns over investor protections that it has about the other Facebook funds, even though Goldman should be considered a more knowledgeable manager than the others.
Finally, let me reiterate that this investment will not necessarily precipitate a Facebook IPO -- even if the SEC finds the company in violation of the 500-shareholder rule, and requires it to publicly disclose financial information. 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.
Not saying that Facebook won't go public soon, just that this new investment shouldn't really change the equation. Well, I guess that's not entirely true. If there is an IPO filing, expect Goldman to be on the cover...
the problem with FB is that it wants to be more than a social networking site, and this is really annoying. please someone tell Mark to stick to the core of his business, be happy with however many well-deserved billions he'll make this way, and stop trying to annoy people with putting this little FB icon on every flipping web-site i visit.
If it walks like a duck...This is without a doubt another huge ripoff scheme run by Goldman, hardly the most honest and forthright outfit on Wall St. Keep your cash in your pocket and you will always know where it is.
I really believe FB has jumped the shark. I have been a user for many years, when you actually needed an e-mail address ending in ".edu" (kept out the grandparents that way) and I will likely deactivate my account soon. My prediction is FB will become the Myspace of 2011.
Why is the common citizen being shut out of this deal? Why do you have to have a high "net worth" to invest?
Dimitrios, your comment is fitting of someone living in Athens. The fact that you think you have absolutely any right to "demand a percentage" of facebooks's profits is laughable at best. But the fact that you, the user of a system that costs you nothing to use and creates no financial risk to join, believe the notion of you stealing from a company's investments is fair is a good indicator of why Greece hasn't balanced a budget in centuries.
You agree to their terms and conditions when you sign up, and you can quit using at any time. That's about as fair as it gets.
Totally agree with the comments! On top of it, goverment have full access to this huge database of people information, not good!
Can hardly wait until the 2020's, when Facebook will be looked upon in a similar manner, to 1970's platform shoes.....
If you think there are privacy issues with Facebook now, just wait until Goldman's anonymous 'Special Purpose Vehicle' takes over.
Facebook will be dead in 10 years with no profits and huge debt. This is just another attempt by GS to rob main street like they did with the CDS bailouts and line their pockets.
Reminds me of a scene from the movie Titanic. While the great ship was slowly filling with water and sinking, the band played on!!!!
Facebook is nothing more than a web page template system and that technology is not new nor is it worth $50 billion.
I agree with Gabriella. $50B valuation? Please. Another signpost of hyper pump and dump.
WELL - FAIR IS FAIR - WE FB USERS DEMAND A PERCENTAGE OF THE PROFITS - FAIR ENOUGH...
What I don't get is why did the US government bailed out Goldman Sachs so it could speculate on digital narcissism? The funniest is Goldman's computers automatically block access to social networking sites, including Facebook.
In my humble opinion as someone who works in social media and online marketing is Facebook is a huge bubble with 0 product or any true ground breaking technology. $50 billion hype = hold on to your wallets. Smells like another DotBomb.
Screen name (Select one with 3-12 characters; Numbers and letters only)
Enter your e-mail address below and we will send you an e-mail with a link and code to reset your password.
Already have the reset code?
Reset code
New password
Password
Forgot password?
Not a member yet?
Screen name
Password
Type what you see in the grey box
CNNMoney will use the information you submit in a manner consistent with our Privacy Policy. By clicking on "sign up" you agree with CNNMoney's Terms of Service and Privacy Policy and consent to the collection, storage and use of this information in the U.S. subject to U.S. laws and regulations. (learn more)
This service is temporarily unavailable. Please try again soon.
Thanks!
Please check your e-mail and click the link to confirm your membership. Then, you'll be ready to participate in all activities and conversations on our site.
Go to your Profile page
Read Full Article »