The Teaming of Goldman Sachs With Facebook

Blankfein of Goldman Sachs and Zuckerberg of Facebook share a lot of common characteristics: both are billionaires that love making money, tons of money; both view with askance regulation of companies especially their own; both know a good deal when they see it; both dislike public scrutiny except what they wish to have scrutinized; both like financial secrecy; both like finding loop-holes; both recognize a money-making deal when they see it; each deserves the other's company. More facts are given below by David Kirkpartrick of The Daily Beast.

Facebook's $50 Billion Goldman Goldmine
by David Kirkpatrick - The Daily Beast, Businss

Far from turning up the heat for Facebook to go public, Goldman Sachs’ $450 million investment, along with Digital Sky’s $50 million more, may actually delay the social-networking giant’s IPO, says David Kirkpatrick.

Monday’s eye-popping announcement that Goldman Sachs was investing $450 million in Facebook, now with a $50 billion valuation, has reinvigorated the attention of a Facebook-obsessed world.

I think the deal is being widely misinterpreted. The article that broke the news in The New York Times suggests that the deal may increase pressure on Facebook for an IPO. Its impact could in fact be quite the opposite. That would well suit CEO Mark Zuckerberg.

Why do companies go public? Generally for two reasons: to raise capital to expand operations and to offer liquidity to hardworking employees who have been compensated in part with stock options. Yet both of those goals will be achieved for the time being, with the deal Goldman has arranged for Facebook. Not only is Goldman investing, but Russia’s Digital Sky Technology is also putting in an additional $50 million, on top of the roughly $700 million it has already invested over the past two years, for about 9 percent of Facebook.

In addition, the Times reports that Goldman is arranging for its clients to purchase as much as an additional $1.5 billion in Facebook stock over time. This will be through an investment vehicle that enables sophisticated investors to buy units rather than shares. (They will be required to invest a minimum of $2 million, according to an update in the Times DealBook article.) Some of those sales are likely going to come from employees, who will thus get liquidity.

Facebook is restricted by SEC regulations from having more than 499 shareholders; otherwise, it must begin publishing its financial data as if it were public. At that point most companies just decide to do an IPO. But new investment vehicles like the one Goldman is creating enable Facebook technically to add only one shareholder, though many individuals gain indirect ownership. Recently the SEC has announced it is investigating trading in shares of Facebook and other private technology companies, including LinkedIn, Zynga, Groupon, and Twitter. There appear to be many reasons for the SEC’s concern, but it is sure to take a close look at these new multi-investor vehicles that are treated as a single shareholder.

Goldman has good lawyers, and its funds could very likely withstand this legal test. If it does, it could help Facebook delay its IPO.

Zuckerberg views taking the company public about the same way most of us view getting a root canal: It might sometime be necessary but should be avoided or delayed as long as possible.

Pictured L-R: Goldman Sachs chairman and CEO Lloyd Blankfein; Facebook CEO Mark Zuckerberg. (Photos by AP Photo)

With the Goldman and DST money, along with the additional funds being raised by Goldman, Facebook will gain up to $2 billion in additional capital for expansion, hiring, acquisition, or whatever other strategic challenges emerge as the once-upstart increasingly goes toe-to-toe with the biggest Internet and tech companies, like Google and Apple.

Read the full article here