The archive · Consumer Apps · Financial decision · 2010–2011
Facebook raises $500M at a $50B valuation, betting it can delay its IPO
Facebook took $500M from Goldman Sachs and DST at a $50B valuation in January 2011 and planned a Goldman vehicle to raise $1.5B more — all without an IPO.
What the business is
Facebook is a social networking site that became the most-visited website in the US in 2010 — 8.9% of all US web visits from January through November — and was still a private company valued at $50B in early 2011.
Starting capital：$500M at a $50B valuation: $450M from Goldman Sachs and $50M from Digital Sky Technologies, which had entered Facebook at a $10B valuation; Goldman planned to raise up to $1.5B more from wealthy clients.
How it started
By early January 2011 Facebook had roughly tripled in value over the previous year, per SharesPost, to about $42.4B, with some secondary-market trades implying $56B; $40M of its shares had changed hands in a single November 2010 auction on SecondMarket. The SEC had just opened an inquiry into private-stock trading, and Zuckerberg had publicly waved off an IPO — 'Don't hold your breath,' he said at an industry conference in November. People involved in the fund-raising said the board had indicated it would consider going public in 2012.
What happened
On Sunday night, 2 January 2011, Goldman brokers emailed wealthy clients offering a minimum $2M investment in an unnamed private company, warning that participants would receive material non-public information and could not sell shares until 2013. The company was Facebook: Goldman invested $450M and Digital Sky Technologies $50M at a $50B valuation — more than the market values of eBay, Yahoo or Time Warner — and Goldman planned a special-purpose vehicle to raise up to $1.5B from clients while counting the pool as one investor, skirting the SEC rule that forces disclosure past 499 shareholders.
How it ended up
At announcement the deal was expected to roughly double Zuckerberg's personal fortune — Forbes put it at $6.9B at a $23B valuation — and to give Facebook cash for hiring, products and acquisitions without public-company disclosure. Whether the special-purpose vehicle would pass SEC scrutiny was unresolved, and the open question was how long a $50B company could keep funding itself off the public markets.
Background
Facebook is a social networking site that, by 2010, had become the most-visited website in the US — 8.9% of all web visits from January through November, ahead of Google — while remaining a private company. In early January 2011 it announced it had raised $500M from Goldman Sachs and Digital Sky Technologies at a $50B valuation, a price above the market values of eBay, Yahoo and Time Warner.
The deal's structure was the bet. Goldman invested $450M and DST $50M, and Goldman planned a special-purpose vehicle to raise up to $1.5B from wealthy clients — minimum $2M each — while treating the pool as a single investor under the SEC rule that forces companies past 499 shareholders to disclose financial results. Clients would be locked out of selling until 2013 and warned they would receive material non-public information.
Zuckerberg had brushed aside the possibility of an IPO — 'Don't hold your breath,' he said at a conference in November 2010 — even as the SEC opened an inquiry into the hot private market for shares in Facebook, Twitter, Zynga and LinkedIn. The deal was expected to roughly double his fortune and gave Facebook cash for hiring, products and acquisitions, all without being a publicly traded company.
For DST the round quintupled the value of its earlier stake, entered at a $10B valuation. The article noted that Goldman's involvement might also position the bank to take Facebook public whenever the company relented — the same private-market pressure that had eventually pushed Microsoft and Google toward their IPOs.
What has to be true
- Facebook wanted the money — hiring, products, acquisitions — without the disclosure and quarterly scrutiny that going public would bring.
- The special-purpose vehicle was the structural wedge: thousands of Goldman clients could count as one investor, keeping Facebook under the SEC's 499-holder disclosure threshold.
- A $50B valuation needed credibility, and Goldman's name plus DST's repeat commitment supplied it for a price that had roughly tripled in a year on secondary markets.
- Zuckerberg's anti-IPO stance was a timing bet: private markets were liquid enough to fund growth, and the board could still choose a 2012 IPO if pressure built.
What can be applied
A marquee private round can buy growth without an IPO, but a vehicle engineered around the 500-investor disclosure rule invites the regulator it was built to avoid — the structure is the risk.
Aftermath
As of 3 January 2011 the $500M tranche from Goldman Sachs and DST had been announced, but the plan to raise up to $1.5B from Goldman's wealthy clients was still ahead and the SEC's view of the special-purpose vehicle was unknown. Facebook remained private and, per analyst estimates, profitable, with the board reportedly willing to consider a 2012 IPO while Zuckerberg still resisted; secondary-market trading continued in parallel. The deal's real test — whether a company worth $50B could keep funding itself off the public markets — was unresolved.
Sources
- Goldman Sachs invests in Facebook at $50 Billion valuation
- Goldman Sachs invests in Facebook at $50 Billion valuation (HN thread)
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