Facebook will receive $500mln investment

Facebook is about to receive a $500 million investment from Goldman Sachs (GS), giving the company a $50 billion valuation, according to the New York Times.

The extra money will allow the company to invest in infrastructure or compete for employees with other Silicon Valley companies, especially Google (GOOG), which has spent freely to keep talent. But another use of the cash infusion is probably more important. Facebook will want to let a number of current employees to cash out their shares, removing a pressure that could push the company into an early IPO.

Any company considering an IPO wants to control the timing as closely as possible. Management wants a market that will bid up the stock price to invest and recent results that make interest likely. Get anything wrong, and the chance of a successful initial offering drops. Demand Media is an example of what can go wrong. Not only did SEC filings shine a harsh light on the company’s strategy, but Demand’s accounting treatment of its freelance writers as a capital cost that it amortizes over five years makes its history of losing money look even worse.