Goldman's Facebook Deal, Too Much of a Good Thing?

Goldman Sachs wasn’t always planning to invest nearly a half-billion dollars in Facebook, according to people familiar with the matter.


As recently as several weeks ago, when Goldman’s private investment in the social-networking site was being formulated as part of a $500 million capital raise, Goldman had only planned to put in $300 million, say these people, with the Russian investment firm Digital Sky Technologies and a third private investor making up the rest.

But shortly before Christmas, that third party backed out, these people say, forcing Goldman to step up with additional cash.

Eager to do right by Facebook and get a piece of an attractive company for itself, Goldman was willing to put in another $50 million, bringing its total investment to $350 million, says one of these people.

But given that the Facebook investment had a maturity date of either the end of 2013 or the company’s initial public offering—whichever were to come sooner—Goldman was far less comfortable with the additional $100 million that was required in order to close the $500 million deal, this person adds. (DST reportedly put in $50 million.)

Enter Goldman’s partners.

Goldman has historically syndicated parts of its strategic investments to individual partners, say current and former employees—as it did with its 2006 investment in the Industrial & Commercial Bank of China.

So allowing some of the firm’s roughly 500-person partner base to get a piece of the action is not unusual. In this case, however, the firm’s partners offered to step in not only to get access to hot pre-IPO Facebook shares, but also to help take down their company’s exposure to a tech company that, at the current estimated value of $50 billion, some investors consider to be too expensive.

In tandem the $500 million investment that Goldman and DST ultimately made in Facebook, Goldman has simultaneously been offering $1.5 billion in Facebook shares to a consortium of high net worth clients and institutional investors.

That deal, say the people familiar with the matter, is now three times oversubscribed, and is drawing to a close. But whether Goldman’s partners will invest in the firm’s own strategic investment is not yet clear.

Watch the premiere of "The Facebook Obsession," a CNBC Original documentary, Thursday, December 6th at 9pm ET.

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