Goldman Sachs Gives Mark Zuckerberg 450 Million Reasons to Change His Privacy Settings

The Facebook founder and CEO preaches openness and "doesn't believe in privacy," but he just took $450 million from one of the villains of the financial crisis to help keep his company from going public—for now.

Here's what we know about Mark Zuckerberg: He works at Facebook (in fact, he runs the place). He studied computer science at Harvard. He speaks some Mandarin, apparently. He's from Dobbs Ferry, NY, has three sisters, identifies as a "cultural" Jew, and once roasted a goat. He is, he says, "trying to make the world a more open place."

All of this is publicly listed on the CEO's Facebook profile. The very point of Facebook, as Zuckerberg's "About me" quote reveals is openness, connectivity, sharing. Zuckerberg reportedly "doesn't believe in privacy."

Here's what we don't know, despite our best efforts, about Zuckerberg's company: We don't know exactly how much revenue Facebook generates. We don't know how many shareholders it has. We don't know many of the things anyone can easily discover about the world's largest companies, because Facebook, despite its gargantuan stature and proselytizing about openness and sharing, has chosen time and again to avoid an initial public offering. "Don't hold your breath," Zuckerberg said at an industry conference in November.

And now, according to a New York Times report, Goldman Sachs has invested $450 million in Facebook in a deal that values the company at $50 billion. For Facebook, the massive infusion gives it many of the same powers as a publicly traded behemoth—without the pesky oversight of the public. Ironically, Goldman's cash and all of the heft that comes with it also comes with a heap of pressure for an IPO. The writing might as well be on Mark's "Wall."

For now, according to the Times, Goldman appears to have crafted plans to help Facebook get around the 499 investor limit on private companies by creating a "special purpose vehicle" that could technically count as one shareholder, even though it might pool investments from thousands of its high-net-worth clients. But by investing such a colossal sum, Goldman Sachs, the Wall Street firm that is quite used to winning (and has a history of friending companies on the verge of going public), has more or less bought itself the right to take the company public, which, as Felix Salmon points out, will earn the company millions in fees. 

It's about time Facebook officially came to Wall Street. Facebook has grown to such proportions that a "shadow market" of private trading in the company's stock had emerged. SecondMarket and SharesPost are two online marketplaces that have been making the deals. "We are serving a growing need," David Weir, SharesPost's chief, told the Times. "A decade ago, these companies would be public by now." The rate of this backdoor trading reached such a fever pitch of late that the Securities and Exchange Commission began to take an interest, sending information requests to the parties involved. The S.E.C. might have been investigating whether the trading has given Facebook more than 499 shareholders; if so, Facebook would be forced to disclose its financial results publicly, per S.E.C. regulations.

Lots of people are eager for the day when Facebook goes fully public, enabling the common investor to get a piece of the Facebook action. The longer it keeps its settings to private or semi-private the longer that trading and prospecting in its stocks remains a playground for the wealthy only. It's your data, and your eyeballs, that have made Facebook a $50-billion company. Someday soon (perhaps next year), you should be able to buy a small sliver of that company; and Facebook, the business, will be as open as Facebook, the website.

Earlier: The Facebook Valuation Timeline

[Image: Flickr user Robert Scoble]

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9 Comments

  • Chief Alien

    I just blogged today why this is a pump and dump.

    1] Goldman makes money selling to suckers
    2] Facebook network growth in US is only 3% since July
    3] Photo sharing for all of Facebook is down 26% since April
    4] User time spent per day is down 22% since April
    5] Only 15 mil people who logged in today in the US and took an action (ie Like, Update, Comment) are fans of a Brand Fan Page
    6] Brand Fan pages for big companies average about a 0.03% and lower engagement rate.
    7] Open Graph, Places, Deals are failures so far.

    This leaves Facebook Ads and Social gaming as the only successes. Is that worth more than every US company except for 43 of them? More than Boeing or Kraft? There is not loyalty and no barriers for leaving. See AOL. See Myspace.

    Pump and Dump. Minute they go IPO I am selling short.

  • Peter Sharma III

    Goldman is colluding with Zuck to flout & successfully violate the US Securities laws. Goldman is forming a shell company to hold its shares while selling off the actual ownership of said shares as fractions of that shell.

    This keeps Facebook itself from reaching the 500-shareholder threshold at which FB would be a de-facto "reporting company" subject to SEC scrutiny.

    It is time for the Congress and SEC to step in and do its regulatory duty. This sort of gaming of the system is a huge part of our economic woe and the severe disparity between the bottom and top of the US society.

  • Aly-Khan Satchu

    Its an extraordinary Story. I like to look at the Valuation via dividing the Market Valuation $50b / The Number of Registered Users and it looks about a $100.00 per User. Given the Time Spent per User and the type of Information shared, It is clear that in an Information Century, Facebook has become the Preeminent Custodian of our Personal Information [And This is where its Valuation is properly higher than Google's because of the Nature of the Information] and a Dominant Market Maker in that same Information. The Issues around Privacy have arisen where Zuckerburg has tried to stretch his Market Making Role at the expense of his Fiduciary Role.

    Facebook is a Pre Eminent Uber Platform. The Valuation can surely stretch a great deal further still.

    Aly-Khan Satchu
    Nairobi
    http://www.rich.co.ke/rctools/...

  • pizzo

    Preeminent custodian of users personal information, true. But yielding a higher valuation than Google because of it? I don't think so.

    Through close scrutiny, as much as there are authentic profiles on Facebook, there are at least tripple as many of either:

    - bogus profiles, fakes
    - redundant profiles (a single user who opens more than one profile)

    Even among the authentic user profiles, majority of the "personal infos" are very much re-engineered with fakes & made up data like the actual "current location", "gender", "age" etc.

  • Chief Alien

    Meanwhile Facebook is raking in less than $3 per user per year in Revenue. Pump and Dump. Hold on to your seat!

  • Marilyn

    Facebook will need to remain good stewards as we all know that fame is fleeting and in a virtual world it is even more so. Good luck Zuck... you are going to need that a heap of wisdom to have a very long and happy life!

  • Robert Garcia

    What scares me about the whole FB scenario is that it has become a beast that's too hard for Zuck to control, but he hasn't let anyone know yet. It's hard to believe that Goldman Sachs invested in a company that it does not have a valid earning history on, so we can assume (safely or not) that big bucks are coming in. But once these different investors start claiming dibs on business decisions, the fiduciary commitment of Facebook will change from it's users to it's shareholders. When those things happen, cool things usually die a slow death.

  • itsshala

    I agree with that last statement. When something has so much pull by investors and stakeholders, it's hard for that company to do what they envision, because they need to satisfy the stakeholders. That often kills innovation.