Investors rush to buy Facebook shares

GOLDMAN Sachs stopped taking orders for shares in Facebook yesterday, with analysts saying the firm was inundated with offers from investors wanting a piece of the action.

Some said that would-be investors were prepared to subscribe for $3bn (£1.9m) of equity in the social networking site, twice as much as is likely to be required.

Facebook is only committed to taking $500m of investment, but is expected to take up to $1.5bn.

Because of the high level of support, Goldman will have to choose how much of the stock investors will each receive, with many allocations expected to be significantly downsized from the amounts requested.

The massive interest in the investment, reminiscent of the days of the technology bubble of the late 1990s, comes despite little information being made available about how Facebook generates its revenue.

Investors were given an offer document providing some of the most detailed financial information to come to light so far about Facebook, showing it earned $355m in net income in the first nine months of 2010 on revenue of $1.2bn.

Goldman Sachs declined to comment last night, citing US regulations.

Investors are being asked to subscribe a minimum of $2m and commit to not selling shares until 2013. However, hundreds of Goldman partners are able to buy shares without being subject to the $2m minimum.

Goldman has been criticised by some for being riddled with conflicts of interest on the deal. It is both receiving commission from Facebook for raising these initial funds while putting itself in prime position to act as an adviser on any potential money-spinning flotation, slated for next year.

There are also some suggestions that Goldman’s valuation of the company, at $50bn, is too high.

Dharmash Mistry, a partner at European venture capital firm Balderton Capital and an investor in several early-stage technology firms, said: “Are expectations ahead of reality? It’s a question-mark as to whether it’s real and all the theory is going to play out or if it’s a bit of a bubble.”

He added that an appropriate comparator for Facebook’s value would be Chinese social networking site Tencent, which has a market capitalisation of HK$326bn (£27bn) on the Hong Kong stock exchange.
Would-be investors in Facebook through Goldman’s special scheme, which include hedge funds, private equity groups as well as Goldman associates, received an invitation to bid for stock at the bank’s $50bn valuation.

It was phrased as follows: “For confidentiality reasons, I am unable to tell you the name of the company unless you agree not to use such information other than in connection with your evaluation of the investment opportunity. All I can tell you is that it is a private company, but that its stock trades in a limited manner on certain private markets.”