Goldman Invests $450m In Facebook

An anonymous reader writes "The news that Goldman has taken a stake in Facebook, the white-hot social networking giant, has tongues wagging from Wall Street to Silicon Valley. As first reported by DealBook, Goldman has invested $450 million in a deal that values Facebook at $50 billion. As part of the deal, Goldman is looking to raise as much as $1.5 billion from its wealthy clients to invest in Facebook alongside the firm."

Comments

Can't resist ...

[johnhennessy]

Did evil just become even more evil while I was sleeping over New Years ?

Goldman Sachs aren't exactly known for their "good values".

Why the hell does an investment bank, who normally act as a "service provider" want to take a direct stake in a Social networking company ?

Re:Can't resist ...

[dachshund]

Why the hell does an investment bank, who normally act as a "service provider" want to take a direct stake in a Social networking company ?

Two words: regulatory arbitrage.

US law currently prevents Facebook from taking on more than 499 investors unless it discloses its financial results to the public. Facebook does not want to do this, but it certainly wants investment money. Plus there's a lot of dumb money out there that would love to invest in Facebook. How to get around this?

The answer is, apparently, to take on a single investor --- Goldman Sachs. G-S will then sell "shares" of their stake to their own investors, collecting a handsome commission along the way. Most likely the investment house won't even wind up with too much exposure of its own, so when Facebook inevitably dot-bombs they'll just be sitting on a pile of cash. Plus there are opportunities here to make and return profits to their preferred clients (as the stock goes up), making sure that only the fools get stuck when it plummets.

Normally it wouldn't bother me too much to see rich people getting fleeced, but how much do you want to bet that somehow your money will wind up in that pool, even if it's indirectly through mutual funds and third-party companies?

Goldman Sachs .... Facebook .... Wall Street ...

[unity100]

What could POSSIBLY go wrong ...

Demographic Data

[MoonBuggy]

Why the hell does an investment bank, who normally act as a "service provider" want to take a direct stake in a Social networking company ?

Well theoretically Facebook's "product" is demographic data for marketing purposes - Goldman Sachs obviously think this is a profitable segment. What I've said before, and will say again, is that I'll never truly believe that marketing data can provide that much value. Obviously some very successful people think differently, so it may well be that I'm just outright wrong, but when I look at the value of Google and Facebook, who might provide slightly better ways to convince people to buy your product, and compare those valuations to those of the companies who actually make popular, profitable and tangible products, it just seems like there's something not quite right here. Bubble 2.0, perhaps?

Re:Demographic Data

[durrr]

Some very sucessful people crashed the worlds economy, while getting filthy filthy rich at the same time.
One mans poison is another mans profit.

Re:Demographic Data

[div_2n]

If FB can figure out how properly utilize the data it has to properly send target advertisements in an unobtrusive way, they will be able to do what nobody has to date -- compete with Google on the advertising front.

This makes them supremely poised to be the ultimate competitor to Google for advertising dollars (which last I heard is the bulk of Google's profits). Note this doesn't make them a direct competitor to Google per se, but certainly it makes them capable of putting one heck of a dent in Google's bottom line.

Re:Demographic Data

[MoonBuggy]

That still hinges on the assumption that targeted marketing is so beneficial that it's worth all these billions of dollars. Maybe it is, maybe I'm wrong - I'm just some guy and I'm arguing with billionaires here, after all - but it looks to me like they're building something of a house of cards that'll come tumbling down if the companies purchasing the ads ever manage to quantitatively assess their impact.

Re:Demographic Data

[Low Ranked Craig]

This all makes sense now. This is the real reason California, and likely other states will criminalize using bogus demographic information in your profile. If you do so you are depriving Goldman Sachs of their rightful revenue from selling your personal info, therefore you have defrauded or harmed the corporation. I mean, it's not like Goldman Sachs owns any congress critters or would ever contribute to completely fucking up an economy only to have the government write them a big check for their efforts.

Re:Demographic Data

[al0ha]

Everyone *thinks* Facebook's product is demographic data for marketing purposes, and at this point in history perhaps that is only what it is used for; however I would not personally feel comfortable believing this will continue to be the only use for all of the connections and information gleaned via Facebook, Google and myriad other data mining enterprises.

The main point almost everyone is missing is that all data put in the *cloud* is there until the end of time, never to be reclaimed. That is a freaking long time peeps; and just as people could not comprehend the ability to land on the moon at the turn of the 20th century; we can not begin to comprehend the future uses, good or bad, for all the data people are currently freely giving up without a second thought. Goldman is obviously betting the payoff will be substantial; far more than mere marketing alone.

In my lifetime we've gone from being upset when a person stood to close to the phone booth (with a closed door) while we were having a conversation, to loudly conversing and putting personal facts out there for anyone to use however they choose.

Re:Demographic Data

[Anonymous Coward]

People still don't get it. That massive global derivatives trade that is larger than world GDP? Guess what's backing it. It's not just your savings. It's not your retirement account. It's not your mortgage. Not even your tax dollars.

It's you.

And anyone who can know all about you, can gain an incredible edge in the new order of global trade. In the new reality, that the world is a closed system. That the economy operates on knowable variables. And that it can be solved. They are building the Google of global finance.

And, to do that, they've put a bullseye on your most intimate details. They want to know your business contacts. They want to know your friends. They want to know who influences your decisions. They are building a map. Forming connections. They want to know what you eat. They want to know how often you exercise. They want to know what drugs you take. What television shows you watch. They want to know how the dominos fit together. They want to know how a random person can say something to a secretary who says it to her boss which influences his perspective and brings down a major corporation, like a house of cards.

Then they can make it happen. Bet against it. And profit. Checkmate.

So there's quite a bit of money on the line. And somehow insurance companies aren't as useful as they once were. Somehow, the entire concept of random, evenly distributed risk probability curves has been replaced with a much more insidious, and manipulable, model. And you're right at the center. So, now, reliably modeling the global economy hinges upon controlling it's most unpredictable part: you.

Re:Fools and their money..

[Seumas]

Only the American tax-payer is the fool, here. This is a can't-lose wager, for everyone else. You invest and get rich or you invest and get re-imbursed by the American tax-payer next time the government decides to save the speculators by handing them a few trillion.

Remember, the current president and last president decided that speculation should no longer have any risk and backed that up with seven or eight trillion dollars in handouts. Hurrah!

Reasons Why This Might Be a Bad Move

[eldavojohn]

The reasons this is a great move are pretty obvious but there's some articles floating around out there that point out this might be a gamble. Reasons include:

• We have no real idea if Facebook revenues are actually near $2 billion. The company is private and doesn't have to report numbers to anyone.
• Groupon and its clones buy lots of Facebook ads, and we don't know if group-buying is a sustainable advertising model. Some local merchants say it kills their margins.
• Zynga and the other social game companies are desperate to find a way to live off Facebook. Google is supposedly building an alternative.

Regardless, it sounds like more of these privately traded shares in auctions from Sharespost will be conducted in the near future. Expect to see Facebook get a serious cash infusion if they all go as well as this one.

Man, they never listen to me

[Daniel Dvorkin]

Tulip bulbs, I tried to tell them. Tulip bulbs! That's the future of finance, right there!

What a relief!

[digitaldc]

I was so worried about facebook running out of money. Thank GOD that Goldman Sachs intervened and saved them from financial ruin.

Re:12 billion bailout

[timeOday]

I am not am not an expert here, but my understanding is Goldman-Sachs was the first bank to repay TARP (a year and a half ago), and the govt. made 23% interest on it.

Re:So each user is worth about $100?

[vlm]

Somehow that does not seem right in any shape way or form. I know at least a handful users that have way more than a couple of accounts (pets, hiders and other stuff.)

Maybe 25 cents/user on a good day but $100?!?

Take all your physical paper junk mail and toss it into MULTIPLE trash bags for about a year. Make an intelligent estimate on paper, printing, and postage costs and multiply by the number of envelopes / catalogs / postcards / phone books. I was easily exceeding $1000/yr a couple years ago.

Realize that my yearly junk mail is a yearly cost for an entire industry, that shows up on the P+L and cash flow statements not the balance sheet. On the other hand you're talking about ownership of a future advertising industry merely being $100 per victim. Frankly, $100 ownership cost per victim is cheap.

Compare to the cost of buying the SuperBowel in order to sell millions per minute TV commercials.

Another fun cost comparison is a realistic estimate of the sum of all local TV stations, at least a hundred million industry wide total to reach a million or so viewers, not so far out of line.

Advertising is big business.

Re:12 billion bailout

[David Jao]

People seem to leave this part out. They keep screaming about the 'bailouts' and tax payer money being 'wasted'. That money has been, for the most part, repaid, with interest. The 'taxpayers' have been making out like bandits with these 'bailouts' because they've decided they don't want the regulation that comes along with it. You take taxpayers money, you play by their rules. It's like people can't beyond the fact that these loans had some pretty heavy strings attached to them for the benefit of the taxpayers.

If you count Goldman's AIG exposure, which any honest accountant must count, Goldman has not even come close to repaying the bailout money they received.

Goldman would absolutely be bankrupt today ten times over had the government not bailed out AIG. The government's bailout of AIG was in effect a proxy bailout of Goldman. Until AIG repays every cent they received with interest, Goldman is not off the hook.

It is, however, more than a little upsetting that cheerleaders like you so blindly accept Goldman's offloading of their liabilities onto AIG and then try to say with a straight face that Goldman has repaid their debt to the taxpayer.