June 29, 2010 12:51 am

Elevation raises Facebook stake

Elevation Partners, the private equity firm, has acquired an additional 5m shares of Facebook for $120m, bringing its stake in the social network to about 1.5 per cent, according to a person with knowledge of the deal. In November, Elevation bought 2.5m shares for $90m.

Elevation, which counts U2 front man Bono among its partners, did not purchase the shares directly from Facebook or its employees, but bought them on the secondary market, where former employees and investors can command lucrative prices for their stakes in one of Silicon Valley’s hottest companies.

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Facebook is privately held, and Mark Zuckerberg, the chief executive, has stated he is in no rush to take the company public. To forestall a flotation, Facebook has taken capital from Russia’s Digital Sky Technologies, which invested $200m in the company last year.

Facebook has allowed shareholding employees to sell their stock under certain conditions. Fewer than 500 of Facebook’s more than 1,200 employees are shareholders and, in April, the company set out new guidelines for share sales by employees. New recruits are given restricted stock units which can be redeemed when the company goes public or is sold.

But Facebook has no control over former employees, early investors or those who have acquired shares on the secondary market. These shareholders are free to buy and sell Facebook stock, creating a frenzied secondary market that has seen the company’s valuation rocket in recent months. Facebook stock is trading at prices that value the company at as much as $24bn. The stake in Facebook is a rare bit of good news for Elevation, a high-profile firm known for ill-conceived investments in Forbes and Palm.

Elevation’s position in Facebook, first reported by TechCrunch, signals a shift in strategy for the firm. Rather than betting on the fortunes of established companies looking for a turnround, Elevation looks to be making longer-term bets on companies it believes will become significant public companies.

Elevation has made a similar investment in Yelp, the San Francisco-based user reviews site, after Yelp’s acqusition talks with Google broke down.

Neither Elevation nor DST have taken board seats on Facebook or Yelp as part of their investments, an added attraction for young companies looking to remain independent. DST pioneered this type of deal last year with its first Facebook investment, and the model has come to be known as a “DST deal” in Silicon Valley.

Additional reporting by Joseph Menn

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