 |
| Facebook Shut Down On 15 March 2011 |
In light of the news that Facebook has raised $500 million from Goldman Sachs and Digital Sky Technologies at a $50 billion valuation, speculation is rife as to whether the social network will have an IPO.
Meanwhile, Facebook and Goldman Sachs are setting up a “special purpose vehicle” to raise another $1.5 billion for the social networking company. This will allow Goldman Sachs clients to indirectly invest in Facebook.
This arrangement will cause the SEC to step in and tell Facebook to disclose its earnings to the public. There is an SEC regulation, in The Securities Exchange Act of 1934, that requires companies with 500 or more shareholders to disclose their earnings to the SEC. The SEC then publishes this financial information, making it public knowledge.
However, the SEC regulation will only take effect in May 2012 because the SEC only requires private companies to start reporting its financial information within four months after the end of its current fiscal year. So if Facebook violates the 500 shareholder rule this year, then it won’t have to start reporting its earnings until May 2012, 120 days after December 31, 2011.
This move buys Facebook more time to grow and prepare itself for an IPO. Since the day will come for the social network to release its financial information to the public, it will probably decide to just go all-in and become a public company, raising even more money in the process.
In the meantime, the question on people's minds is what will Facebook use the extra cash for? It is likely that it will invest in new data centres and acquisitions, allowing it to expand without the hassle of listing its shares.
