Russians Value Facebook at $10b, Chuck in $200m

By Maureen O'Gara	Article Rating:
May 27, 2009 11:00 PM EDT	Reads:	17,556

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Facebook said Tuesday that it had taken $200 million from Russian Internet investor Digital Sky Technologies (DST).

In return DST gets 1.96% of Facebook's equity in preferred stock, no board seat and no vote, not even observer status.

The Russian firm also intends to buy at least $100 million worth of the privately held American company's common stock off of current and former Facebook employees.

Facebook has been trying to pull off that kind of pre-IPO liquidity trick for a while now since the market's appetite for IPOs is out to lunch. Details are expected this summer.

The deal values the chi-chi social networking site, which has yet to turn a profit on its enormous traffic, at $10 billion.

When Microsoft put $240 million in the joint a year and a half ago for a 1.6% interest, Facebook was valued at an even more incredible $15 billion.

The depressed valuation is attributed to the recession and the credit crisis - which reportedly made it hard for Facebook to raise that kind of money - although a year ago it valued itself for a lawsuit at only $3.7 billion.

Facebook CEO Mark Zuckerberg said on a conference call that the DST and Microsoft deals are different.

Microsoft's, for instance, was made at the "absolute peak of the market," when the world was a different place. It involved an expanded advertising and search agreement and was more strategic. DST's is supposed to be more of a garden-variety financial transaction meant to help grow the company. Zuckerberg said Facebook doesn't need the money.

Facebook currently claims 200 million users, 70% of which are outside the U.S. Its revenues are supposed to be growing at 70% year-over-year and Zuckerberg said the company would be cash-flow positive in 2010.

eMarketer calculates Facebook revenues this year at $300 million, up 20%.

Outside of the DST money, Facebook has raised around $400 million from Microsoft, Peter Thiel's Founders Fund, Accel Partners and Greylock Partners.

The four-year-old DST, which claims to have put a billion dollars into 30-odd companies, owns a piece of Mail.ru, the premier Russian web site, and vKontakte, a Russian social network more popular there than Facebook. Its combined assets are said to account for over 70% of the page views on the Russian-speaking Internet and its social networks are reportedly the market leaders in more than 13 countries, addressing a population of 350 million people.

It has experience in micropayments and selling virtual goods, areas of interest to Facebook. It wants to charge for some of its features.

DST is run by three partners: Yuri Milner, former CEO of Mail.run; Gregory Finger , former head of the Moscow office of NCH, a multibillion-dollar hedge fund; and Alexander Tamas, former co-head of Internet and software coverage in EMEA for the investment banking side of Goldman Sachs.

Roughly 30% of DST is reportedly owned by Russian billionaire Alisher Burkhanovich Usmanov.