Facebook Turns Down Additional $500 Million and Caps Goldman, DST Round at $1.5 Billion

After three weeks of fervent media speculation, Facebook has come forward to confirm a $1.5 billion financing round through Goldman Sachs Group Inc. and Russia’s Digital Sky Technologies. The round, which valued Facebook at $50 billion, was done in two parts. The first part was a direct investment of $500 million by both firms, and the second involved $1 billion raised from Goldman’s high-net worth clients overseas.

Although the company could have raised an additional $500 million through the Goldman vehicle, it decided to cap the offer. While Facebook didn’t say what it would spend the round on, it did say it took the offer to “bolster its cash reserves” without substantially diluting its existing shareholders. Facebook said it didn’t initiate the round. Goldman and DST did.

Facebook added that it expects to pass the sensitive 500-shareholder limit sometime this year so it will start filing public financial reports in April of next year. That doesn’t necessarily mean it will make a public offering at that time, although other technology companies faced with a similar situation in the past like Google decided to file for an IPO anyway. Facebook spokesperson Jonny Thaw declined to comment on the company’s IPO plans.

Technologies and Goldman Sachs Also Recently Made $500 Million Direct Investment Investment Values Facebook at $50 Billion
PALO ALTO, Calif. — Jan. 21, 2011 — Facebook today announced it has raised U.S.$1.5 billion at a valuation of approximately $50 billion.

The transaction consisted of two parts. Today, Goldman Sachs completed an oversubscribed offering to its non-U.S. clients in a fund that invested $1 billion in Facebook Class A common stock. In December, Digital Sky Technologies (DST), The Goldman Sachs Group, Inc., and funds managed by Goldman Sachs invested $500 million in Facebook Class A common stock at the same valuation.

“Our business continues to perform well, and we are pleased to be able to bolster our cash position with this new financing,” said David Ebersman, Facebook’s chief financial officer. “With this investment completed, we now have greater financial flexibility to explore whatever opportunities lie ahead.”

The investment generated a significant number of questions from interested parties and Facebook has addressed the most common ones below.

Why did Facebook raise this money? DST and Goldman Sachs approached Facebook to express their interest in making an investment, and Facebook decided it was an attractive opportunity to bolster its cash reserves and increase its financial flexibility with limited dilution to existing shareholders.

Why did Facebook choose to raise $1 billion in the overseas offering? Under the transaction’s terms, Facebook had the option to accept between $375 million and $1.5 billion from the Goldman Sachs overseas offering, at the discretion of Facebook. While the offering was oversubscribed, Facebook made a business decision to limit the offering to $1 billion.

What are Facebook’s plans for the proceeds of this transaction? There are no immediate plans for these funds. Facebook will continue investing to build and expand its operations.

Does this investment mean that Facebook will have more than 500 shareholders?

Even before the investment from Goldman Sachs, Facebook had expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012.