A Russian Internet investment firm has invested US$200 million in Facebook, giving the social networking company a cash buffer during the recession and pegging its value at US$10 billion.
Digital Sky Technologies, which has invested in leading Russian Web properties such as Mail.ru and Vkontakte.ru, will take a nearly 2 percent stake in Facebook in exchange for preferred stock, the two companies said on Tuesday.
The new valuation is US$5 billion lower than when Microsoft Corp invested US$240 million in Facebook, in return for a 1.6 percent stake, in 2007.
Asked about the lower valuation, Facebook chief executive Mark Zuckerberg said Microsoft invested when “we were right at the absolute peak of the market.”
The Microsoft deal was more of a “strategic partnership” where the two companies partnered on advertising and search, whereas Digital Sky made a “straight financial investment,” Zuckerberg said on a conference call.
Given this context and the current economy, “we think of this as a fair and good valuation,” he said.
Facebook did not need to raise additional funds, but welcomed Digital Sky’s investment as a “cash buffer” that will help it grow comfortably, Zuckerberg said.
Other potential investors too have come calling, he said, and Facebook has held discussions with several groups interested in putting money into the company.
Digital Sky won because its founders Yuri Milner and Gregory Finger have strong experience running Internet properties in Eastern Europe and Russia, and “a deep, advanced understanding” of social networking technology, Zuckerberg said.
“Ultimately [it was] this deal and my comfort with Yuri and the team,” said Zuckerberg, 25, who founded Facebook in a Harvard University dorm room five years ago.
Since then the social networking site has seen explosive growth.
Facebook now has more than 200 million active members, double the number it had just last August. About 70 percent of its members are outside the US.
Critics of Facebook, which makes most of its money through advertising, say the company has not yet figured out a sustainable revenue model.
But the company has said it is on track to increase revenue by 70 percent year-on-year, and to become cash-flow positive by 2010.
Digital Sky’s Yuri Milner, who attended Wharton Business School and was CEO of Russian Web portal mail.ru, said his firm hopes to bring its expertise in making money off other Web properties to Facebook.
It was “a very simple exercise of applying what we’ve learnt in other parts of the world to Facebook,” he said, adding that he was comfortable with the US$10 billion valuation.
Digital Sky also plans to buy at least US$100 million of Facebook common stock from existing stockholders to provide liquidity for current and former employees with vested shares of Facebook stock.
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