Who Will Buy Into Goldman's Facebook Investment Project?

By January 05, 2011
Bringing the money

While Goldman Sachs dropped a huge evaluation on Facebook, most financial commenters are viewing the $2 million minimum investment opportunity with major suspicion.

Goldman Sachs contacted wealthy private clients earlier this week to offer them a chance to invest in the largest social network site, Facebook. On Sunday night, Goldman brokers emailed this group of investors, which the New York Times New York Times sources described as an opportunity to make a $2 million minimum investment to participate in this project, which would also bind them from selling their shares until 2013.

The financial service group valued the company at $50 billion based on $2 billion in revenue, and may raise as much as $1.5 billion from investors. Facebook has raised $500 million from Goldman Sachs and Digital Sky Technologies, a Russian tech investor.

Goldman required clients to sign a non-disclosure agreement, according to Joseph A. Giannone and Matthew Goldstein of Reuters, and a decision date of the end of the week. They also received minimal information about the Palo Alto-based company, basically visitor metrics "that compare favorably to Google." The authors suggest that this deal could establish a precedent for private companies who want to raise money "but do not want the hassle and expense of publicly traded shares."

The deal has prompted financial commenters such as Miguel Helft at the New York Times to infer that Facebook will inevitable go public. Helft suggests this situation is similar to when Google was required to release its financial information. But Reuters's Felix Salmon disagrees, arguing that Facebook has demonstrated an ability to raise money privately, and Zuckerberg would prefer to continue working with his current board of himself, Marc Andreessen, Jim Breyer, Don Graham and Peter Thiel. 

Criticizing the investment project, CNN CNN Money's Duff McDonald would not buy the Facebook stock if he had the cash. His information leads him to believe that the company's user growth has crested, and that Goldman's valuation is much lower than the $50 billion being publicized. With promises of narrow profit margins - McDonald estimates revenue breaks down at roughly $4 per user per year and lack of solid numbers all point to a less than solid investment opportunity.

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