Goldman Gives Facebook a $450M Lift

With a US$450 million investment in Facebook, Goldman Sachs gets to look cool. Facebook gets capital to help face its competitors, particularly Google.

The latest investment in Facebook rises to $500 million when you add another $50 million investment from Russian investors Digital Sky Technologies, which is a Goldman partner. Digital Sky acquired 2 percent of Facebook for $200 million in 2009. The Goldman investment pegs Facebook’s worth at $50 billion, with CEO Mark Zuckerberg’s share coming to about $14 billion.

Facebook is mum on the Goldman investment. “We don’t have any comment on the matter,” Larry Yu of the Facebook press team told the E-Commerce Times.

Goldman Sachs did not respond to the E-Commerce Times’ request for comments by press time.

SEC Curiosity

The investment comes at a time when the Securities and Exchange Commission is looking into the market for privately held shares that are traded on websites such as SharesPost and SecondMarket. If a company’s investor population reaches 500, the company is required to disclose financial information to the public. Shares of Facebook are some of the most popular privately traded stock.

Goldman is planning to create a “special purpose vehicle” that may allow the company to skirt that rule by allowing the bank to be counted as one investor, even though it could be pooling investments from thousands of clients, according to The New York Times.

Cash for Competition

The investment gives Facebook a pile of cash to help the company fight to retain its technology team. Google has been making a push to steal talented tech workers away from Facebook, but the Goldman investment will help Facebook fight off the attack.

Facebook can expect competitors, particularly Google, to nibble at the edges of its market. Cash is the needed defense.

“Facebook is lining up to compete with Google, and Google is a gigantic player,” Rob Enderle, principal analyst at the Enderle Group, told the E-Commerce Times. “Facebook needs to gird for battle, and they can’t do it without a significant war chest — and this is that war chest.”

The Goldman investment also ups the stake for an inevitable Facebook IPO.

“This sets the value of a Facebook IPO very high — so investors will get a lot out of it,” said Enderle. “There’s a feeding frenzy around this property. Facebook has to grow very quickly, because they have to compete with some very big players, Google being the most important.”

Positive PR

Goldman gets a number of positives out of its investment. For one, it adds some sparkle to the Goldman name. Goldman gets to be in the headlines with upbeat news instead of reports on investigations or bailouts.

“Goldman looks to be at the cutting edge of a wise investment just before Facebook goes public,” noted Enderle. “Plus, Goldman will probably have something to do with the IPO.”

The ability to raise large chunks of cash through investors takes the pressure off an IPO, but expectations are building for 2012.

Making It Real

Facebook shares have been trading on the private market as though the company is worth $50 billion. The Goldman investment suggests the private trading has been on target.

“Facebook gets to put a Goldman Sachs seal of approval on its ballooning evaluation at $50B,” Azita Arvani, principal of the Arvani Group, told the E-Commerce Times.

“While the $40-to-$50-billion range of valuation for Facebook at transactions on SecondMarket and SharesPost may have been attributed to overenthusiastic buyers who would have a hard time getting their hands on Facebook shares directly,” she observed, “Goldman’s investment provides credibility for a $50 billion valuation.”