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Goldman Sachs Said to Invest $450 Million in Facebook

Facebook Inc. received a $500 million investment from Goldman Sachs Group Inc. and Russia’s Digital Sky Technologies that values the social-networking company at $50 billion, according to three people familiar with the matter.

Goldman Sachs, which invested $450 million, also made an arrangement that lets its clients buy Facebook equity worth as much as $1.5 billion, said two of the people, who asked not to be identified because the deal is private. Digital Sky invested $50 million, boosting an earlier stake, the people said.

Facebook, owner of the most popular social network, is luring investors eager to benefit from its growth among users and advertisers. The company had about $2 billion in sales last year, up from $700 million to $800 million in 2009, other people familiar with the matter said last month. It may use the funding to expand, said Jeremiah Owyang, an analyst at Altimeter Group.

“This is a very large investment -- one of the largest that we’ve seen in this space,” said Owyang, whose firm is based in San Mateo, California. “They need this money for growth.”

Facebook, based in Palo Alto, California, is increasing staff to compete with Google Inc., owner of the world’s most popular search engine, and other rivals. The company, founded in 2004 by Chief Executive Officer Mark Zuckerberg, has more than 2,000 employees, while Google has more than 23,000. Facebook has more than 500 million users, up from about 175 million in February 2009.

Photographer: Tony Avelar/Bloomberg

Facebook Chief Executive Officer Mark Zuckerberg. Close

Facebook Chief Executive Officer Mark Zuckerberg.

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Photographer: Tony Avelar/Bloomberg

Facebook Chief Executive Officer Mark Zuckerberg.

Most Visited Website

Facebook surpassed Google to become the most visited website in the U.S. in 2010, according to New York-based Internet tracker Experian Hitwise. Facebook received 8.9 percent of all U.S. Web visits between January and November 2010, while Google’s main site was second with 7.2 percent.

As part of the agreement, Goldman Sachs can sell as much as $75 million of its stake to Digital Sky, two of the people said. Digital Sky is part-owned by New York-based Goldman Sachs.

Digital Sky invested $200 million in Facebook in May 2009 at a valuation of $10 billion. It has since increased its stake by purchasing common shares, including employee shares in a $100 million offer, according to two people familiar with the matter.

Digital Sky’s investments extend to other Web properties. The firm led a $135 million investment in daily-deals site Groupon Inc. last year and was part of a group that invested $180 million in Zynga Game Network Inc., a social-gaming service, in 2009.

Bigger Than Yahoo

Facebook is valued at $45.2 billion by SharesPost, an exchange for private shares. That’s up from $36.2 billion three months ago.

At $50 billion, the company now has a valuation that exceeds Web portal Yahoo! Inc., online commerce site EBay Inc. and travel site Expedia Inc.

Facebook may put off an initial public offering until 2012 so it could focus on expansion, three people familiar with the matter said last year.

Larry Yu, a spokesman for Facebook, and David Wells, a spokesman at Goldman Sachs in New York, declined to comment. Leonid Solovyev, a spokesman for Digital Sky, didn’t immediately respond to a request for comment.

The investment was previously reported by the New York Times.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net.

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

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