Goldman’s $450m Facebook Investment Signals New Dotcom Boom

Can Goldman Sachs really be giving Facebook a Christmas present of a $450 million investment, when all the world is grinding along, deep in what is politely called “austerity”?

Most of us have no money, but the deal says that our souls are worth something. Facebook owns a significant proportion of the lives of around 500 million – and greedy Goldman has got the cash to buy some of that. The total investment of $500 million apparently also included around $50 million from Russia’s Digital Sky Technologies.

Is $50 billion insane?

The deal values Facebook at $50 billion (£32bn), and also doubles Facebook founder Mark Zuckerberg’s fortune to a reported $14 billion (£9bn).

Valuing the site so highly is not insane – after all, the site regularly beats Google for the number of pageviews. This happened despite the fact that many of its users do not understand how to type in their browser’s address bar: “Facebook”  was the most popular search term on Google in 2010.

Zuckerberg was named Time magazine’s person of the year (although Steve Jobs got the FT’s equivalent title). He has inspired criticism for his attitude to his consumers, and has announced he will donate a fortune to charity.

The site is apparently beginning to turn a profit, but the high valuation is based on users, not revenue, and Facebook needs money to keep building data centres to support its users. Last year, Facebook built a data centre in Oregon which was efficient and green, but was criticised for using coal-fired electricity.

Goldman stokes the bubble

The cash from Goldman will allow Facebook to stay private. It can keep building infrastructure, hiring top-level staff and growing its company, while putting off the moment when it tests its “real” value in a stock market flotation.

The company has effectively managed to sell some of itself, without having to go through all the disclosure that a full flotation would require.

This blurring of the boundary between public and private companies has been criticised, for instasnce by the San Franciso Chronicle. Private companies are only allowed up to 500 investors, and Goldman apparently plans to set up a special-purpose fund to invest in Facebook, with other people’s money – and intends to convince the US regulators that it is still only one investor.

Shares are being promoted as a good investment at the moment, since other investments are flat, and property is largely in decline. Contrary to what I said above, there are people with money to invest, and there is a demand for shares in companies that are not yet traded publicly, like Facebook and LinkedIn.

At some point, quite possibly during 2011, Facebook will go public. This could be the official start of a new dotcom boom.

It’s depressing to see Goldman Sachs stoking the new dotcom boom, after the hate inspired by its role in the housing bubble.