NEW YORK (Reuters) - A Russian Internet investment firm has invested $200 million in Facebook, giving the social networking company a cash buffer during the recession and pegging its value at $10 billion.
Digital Sky Technologies, which has invested in leading Russian web properties like Mail.ru and Vkontakte.ru, will take a nearly 2 percent stake in Facebook in exchange for preferred stock, the two companies said on Tuesday.
The new valuation is $5 billion lower than when Microsoft Corp invested $240 million in Facebook, in return for a 1.6 percent stake, in 2007.
Asked about the lower valuation, Facebook Chief Executive Mark Zuckerberg said Microsoft invested when “we were right at the absolute peak of the market.”
The Microsoft deal was more of a “strategic partnership” where the two companies partnered on advertising and search, whereas Digital Sky made a “straight financial investment,” Zuckerberg said on a conference call.
Given this context and the current economic conditions, “we think of this as a fair and good valuation,” he said.
Facebook did not need to raise additional funds, but welcomed Digital Sky’s investment as a “cash buffer” that will help it grow comfortably, Zuckerberg said.
Other potential investors too have come calling, he added, and Facebook has held discussions with several groups interested in putting money into the company.
Digital Sky won because its founders Yuri Milner and Gregory Finger have strong experience running Internet properties in Eastern Europe and Russia, and “a deep, advanced understanding” of social networking technology, Zuckerberg said.
“Ultimately (it was) this deal and my comfort with Yuri and the team,” said Zuckerberg, 25, who founded Facebook in a Harvard University dorm room five years ago.
Since then, the social networking site, where people can create personal pages, post pictures and exchange messages with their friends online, has seen explosive growth.
Facebook now has more than 200 million active members, double the number it had just last August. About 70 percent of its members are outside the United States.
Critics of Facebook, which makes most of its money through advertising, say the company has not yet figured out a sustainable revenue model.
But the company has said it is on track to increase revenue by 70 percent year-over-year, and to become cash-flow positive by 2010.
Digital Sky’s Yuri Milner, who attended Wharton Business School and was CEO of Russian web portal mail.ru, said his firm hopes to bring its expertise in making money off other Web properties to Facebook.
It was “a very simple exercise of applying what we’ve learnt in other parts of the world to Facebook,” he said, adding that he was comfortable with the $10 billion valuation.
Digital Sky also plans to buy at least $100 million of Facebook common stock from existing stockholders to provide liquidity for current and former employees with vested shares of Facebook stock.
Founded in 2005, Digital Sky has raised and invested more than $1 billion in over 30 companies, according to the firm’s website.
The new investment will also give Facebook the flexibility to pursue strategic options, although the company has not been very acquisitive so far.
Last week, Zuckerberg told the Reuters Global Technology Summit he hopes to eventually take his company public but added he is in no rush to do so.
Reporting by Anupreeta Das; Additional reporting by Alexei Oreskovic in San Francisco; Editing by Derek Caney, Gerald E. McCormick, Gary Hill