Facebook has done a deal with Goldman Sachs to set up a special purpose vehicle or SPV which will allow the company to get around the limitation on the number of investors it can have. Currently limited to 499, Goldman Sachs will work with the world’s leading social network to get around this limitation and allow Goldman’s high net worth investors to get a piece of the company before it is publicly traded.
It is rumored that 2012 is the year Facebook is considering going public and at its ever-expanding valuation it seems virtually impossible that any company would be big enough to acquire them.
It should be noted the SEC requires as part of the Securities Exchange Act of 1934 that companies with more than 499 investors disclose their financial results to the public and the commission may not look favorably on this deal. Moreover, the SEC is already looking at the secondary investment market for a slew of web companies – coincidently, many in the social media space.
The deal now values Facebook at $50 billion and this transaction means an earlier investment from Russian investment firm Digital Sky Technologies has gone up five-fold in value.
One wonders if indeed we are witnessing a new bubble in tech valuations as I discussed a while back or whether as some think, the entry of Wall Street into the game signals we are much earlier in the valuation curve.
One thing is for sure – with the challenges at MySpace including rumored layoffs, now seems like the best time for Facebook to do a deal like this.
The company will use the money it has raised to keep hiring top talent and for acquisitions. I also believe it is logical for the company to start an app store and try to generate revenue from paid apps and service sales. This seems like a no brainer considering Apple may see $2B in gross revenue from app sales in 2011.