Facebook has gotten $200 million from a Russian investment group in exchange for a small stake in the nation's largest social networking company. The deal places the value of the site, known for allowing people to connect through "SuperPokes" and virtual gifts, at $10 billion.
Digital Sky Technologies, with headquarters in Moscow and London, will get a 1.96 percent stake in the company for its investment. It will not have a seat on Facebook's board, the Palo Alto-based company said in a statement yesterday.
The investment will be used as a "cash buffer" as the company develops new features, such as a video chat service, Facebook chief executive Mark Zuckerberg said in a conference call with analysts.
The deal places Facebook's estimated net worth at less than the $15 billion Microsoft valued it at nearly two years ago when it sought to make an investment, but far more than Facebook had valued itself. In 2007, the company estimated its worth at $3.7 billion, according to lawsuit documents involving it and another social networking site.
Zuckerberg declined to comment on his company's latest valuation. He said the company, which sometimes has a difficult time converting its popularity into revenue, is on track to be "cash positive" in 2010.
As a privately held company, it does not have to disclose revenue; tech industry insiders and analysts have calculated that Facebook is on track to make between $230 million and almost $400 million this year.
Silicon Valley tech pundit Rob Enderle said that the $10 billion valuation seems high. "Revenue and revenue growth rate doesn't suggest a valuation at this level," he said.
Enderle said this is the first major investment of Russian money in Silicon Valley that he is aware of and that the prospect makes him "a little nervous."
"You kind of wonder where the money's coming from," he said. After all, Eastern Europe is a major source of online-based identity theft rackets. "Red flags should probably go up making sure one thing doesn't connect to the other," he said.
DST's investment comes at a time when Facebook is increasing its efforts to strengthen its business overseas, said Tim Bajarin, of the Silicon Valley think tank Creative Strategies. He said Facebook's hundreds of millions of users could represent just a start for the company if it manages to successfully expand.
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