Facebook recently sold a roughly 2% equity stake to a Russian firm for a cool $200 million.  If you do the math, it turns out that the investment valued the entire firm at $10 billion putting the market cap well above many blue chip names.

The transaction immediately raises my curiosity as valuations like that would likely lead to the company eventually issuing stock.  After all, these private owners have what could be a huge goldmine on their hands if they can recognize anything close to $10 billion in a public sale.

Now if an IPO were to occur, it is almost certain that only a small portion of the company would come to market.  Typically private investors or founders sell 10 to 25% of the company in the initial transaction to establish a market for the shares and develop confidence in the company’s ability to execute.  Then down the line when shareholders have bid up the stock, the private holders usually begin unloading which sometimes leads to significant drops in market valuation despite a strong underlying business.

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Facebook certainly has options besides going public.  Microsoft has made an investment in the firm and there is always speculation that the social networking leader will be gobbled up by Google Inc. (GOOG).  But some believe that the company should do something quickly and take advantage of their popularity.

Internet social media can be a very fickle thing.  In the early stages AOL appeared to be a sure winner as the leader in user friendly email and online information.  Time Warner bought the company for an extreme multiple but very quickly found out that it was difficult to monetize this investment.  Myspace has also had its day in the sun, but lately its popularity has waned.  Twitter may become one of the next rivalries although I have my doubts as to whether this medium will stay relevant long-term.  The bottom line is that it may be in the owners of Facebook to strike quickly while the iron is hot.

Hat tip – Intelligent Speculator – Facebook gets $10 Billion Valuation