The agreement, which includes funding from Digital Sky Technologies, a Russian Internet investment firm, values Facebook at $50 billion, said the people familiar with the matter. That's up from $10 billion in mid-2009.
The deal ignited Monday a frenzy of phone calls and emails by clients in the private wealth-management division at Goldman Sachs, who will get an opportunity to buy equity in Facebook, said people familiar with the matter.
Regulators, meanwhile, continue to examine a surge of trading in shares of Facebook and other still-private tech companies. SecondMarket Inc., which helps match buyers and sellers of pre-IPO companies, said Monday it received a letter of inquiry from the Securities and Exchange Commission on Thursday.
SecondMarket said the inquiry related to pooled investment funds that have been formed to buy private company stock. "We are fully cooperating with the SEC in this inquiry," the company said.
With its investment in Facebook, Goldman is also creating an investment fund through which its clients can buy shares in the social-networking company. To get Facebook shares, clients must make a minimum investment of $2 million and agree not to sell until 2013.
The SEC would be concerned about Goldman's transaction if the fund were being used to get around securities laws, such as the requirement for increased financial disclosures if Facebook has more than 500 shareholders, another person familiar with the matter said.
The investment is the latest example of how Silicon Valley's newest generation of Web companies is taking capital to stay private for longer. While as recently as a decade ago it was a status symbol in Silicon Valley to go public quickly, Facebook, Twitter Inc., Groupon Inc. and others are among the new crop of firms that have recently raised big money in private financing rounds that provides them a cash cushion to continue remaining private.
Across Silicon Valley, "the incentive for going public has lowered and the penalty for going public has increased," said Ben Horowitz, a partner at venture-capital firm Andreessen Horowitz, which in November bought Facebook shares from venture-firm Accel Partners in a private transaction.
"Compared to the 1990s when everybody went public as soon as possible at much lower revenues," the regulatory environment and the rise of hedge funds has made it "dangerous" for start-ups go to public without a large cushion of cash, said Mr. Horowitz. "In general, we recommend that our companies be very careful about going public."
Groupon, the daily deals website, said last week it is raising $950 million in new funding, adding to the more than $175 million it previously raised. Twitter said last month it had raised $200 million in a funding that valued it at $3.7 billion, bringing its total raised to $360 million.
Many chief executives of the Web companies, including Facebook's Mark Zuckerberg, have said publicly they are in no hurry to go public. has said Mark Pincus, CEO of fast-growing social-game maker Zynga Inc., also said the company had no IPO plans.
Overall, the typical U.S.-based venture-backed company went public in just over eight years in 2010, up from just over three years during the tech boom of 2000, according to Dow Jones VentureSource.
But the increasing length of time that many of these companies are staying private has led to new issues. In particular, investment partnerships have sprung up that pool money from various investors in order to buy shares of Facebook, Twitter and others. It's unclear whether those pools of capital should be counted as one shareholder or multiple shareholders.
In the latest Facebook financing, Goldman is investing $450 million, with DST contributing $50 million, said the people familiar with the matter. Goldman is expected to sell $75 million of its stake to DST, leaving the investment bank with $375 million of its own capital invested, the people said. The investment was earlier reported by the New York Times.
Including its newest investment, DST will have invested around $900 million in Facebook and now owns just under 10% of Facebook, according to the people familiar with the matter.
Facebook, which has more than 500 million users, plans to use the new cash it has raised "opportunistically," and no specific purposes have yet been identified, according to one of the people familiar with the matter. The Web company has been on a growth tear with its hiring, with 1,700 employees as of November, up from 1,000 a year earlier. Facebook executives have also said the company plans to acquire more than 10 companies this year.
Facebook had been searching for an investment by a major financial institution that would provide a benchmark valuation for the company ahead of any public offering, which is still expected to happen in coming years, people familiar with the matter said. Facebook didn't shop around for a bank to make an investment, the people familiar with the matter said. Rather the investment came about through DST's existing relationship with Goldman, they said. Several former Goldman employees work at DST.
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