Why Did Facebook Raise $1.5 Billion?

Of late, online social networking site Facebook received $1 billion from Goldman Sachs overseas offering; and Digital Sky Technologies (DST) and Goldman Sachs also made $500 million direct investment. While the recent total investment is U.S. $1.5 billion, the investment values Facebook at a whopping $50 billion.

But why Facebook – that claims to have nearly 600 million users on its site – needs this kind of money?

It said Friday in a statement that 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.

[ Also Read: Why Do We Need a Movie on Facebook? ]

The transaction consisted of two parts. 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, 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.

[ Also Read: But Why Don’t You Pay for Using Facebook? ]

“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.”

Recently, TIME magazine gave its Person of the Year award to Mark Zuckerberg, founder and CEO of Facebook. The award has raised many eyebrows among the tech’s chattering classes. Why? (Read: Is the TIME Right to Honor Zuckerberg of Facebook?)

Also, Zuckerberg (pictured above) has decided to create a $100 Million Foundation — Startup: Education — to improve student success.

On an Oprah Winfrey Show, New Jersey Governor Chris Christie and Newark Mayor Cory A. Booker launched the Partnership for Education in Newark to improve public education with the support of Zuckerberg. (Read: Facebook Chief Zuckerberg Forms $100M Foundation)

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.

[ Also Read: How to become a Facebook Star: 10 Tips ]

The company says there are no immediate plans for these funds. However, Facebook will continue investing to build and expand its operations.

Even before the investment from Goldman Sachs, Facebook says it 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.

Facebook is a privately held company and is headquartered in Palo Alto, Calif.

Photo courtesy: Facebook

RMN News

Rakesh Raman