Facebook has been in the news recently as it has raised $500 million from Goldman Sachs for a 1% stake, at a $50 billion valuation. In addition, it intends to raise another $1.5 billion by selling 3% stake to an SPV that Goldman Sachs will be setting up to allow some of its clients to invest indirectly in Facebook.

The social networking site wants $2 billion in fresh resources to be able to keep up with the kind of growth it has seen in 2010. Last year, Facebook became the most visited site globally, crowding out Google from the top perch. The social network service has seen very rapid growth in the last six years, since its casual beginning in February 2004.

The Facebook site was started by Mark Zuckerberg with his college roommates at Harvard as an equivalent of a book with face-pictures of students that is normally given by university offices to facilitate interaction among students. The Facebook site, which tried to replicate the book, became so instantaneously popular that it attracted 450 visitors and 22,000 photo-views in its first four hours of existence. Within the first month, more than half the undergraduate population at Harvard had registered on the site. The founders obviously realised that they had a sweepstake worth potentially billions of dollars in their hands and rapidly scaled up the site?s reach. The service was expanded to Stanford, Columbia and Yale within a month of its beginning. It soon spread out to all universities? students and then to all high-school students. Currently, Facebook is open to anyone aged 13 and over. It has about 1,700 employees and offices in 12 countries, with more than 500 million active users globally. Obviously, such a rapid rise in less than seven years has meant that it needed large doses of investment. In October 2007, Facebook got an investment from Microsoft of $240 million for a 1.6% stake at an implied valuation of $15 billion. Last week, Goldman Sachs invested $500 mn of its own and another $1.5 billion through the SPV.

There have been a lot of questions about the Facebook SPV since the news broke. For instance, why is Facebook getting equity investment through an SPV? Well, there is an SEC regulation that requires companies with 500 or more shareholders to disclose their earnings to the public. It is apparent that Facebook doesn?t want the pains of enhanced disclosures and audits. But the site still wants the additional $1.5 billion of investment, so Facebook and Goldman Sachs have come up with a very clever workaround. Instead of having thousands of individual investors, Goldman Sachs will represent them all and invest on their behalf. To put it bluntly, Goldman Sachs is helping Facebook circumvent SEC regulation.

That begs the question?will the SEC allow it? I tried to dig up the Securities Exchange Act, which clearly states that if a company creates a vessel for holding securities of record primarily to circumvent this Act, then it will deem beneficial owners as ?record owners?. In other words, the SEC could reckon that Facebook is circumventing regulation and thus consider all of the investors in the SPV to be ?record owners? of Facebook. That would mean that the social network would have to comply with SEC decree, sooner than never. The SEC is already investigating the private secondary markets for potentially violating regulation. It wouldn?t be much of a jump for the SEC to tell Facebook that its investment vehicle doesn?t preclude it from being deemed a public company.

Now here?s where it gets interesting. Facebook is setting up this SPV to raise money that it desperately needs. To me, it looks unlikely that Facebook is so na?ve to think that the SEC will be pleased with this arrangement. It probably knows that the SEC will step in and ask it to comply with the disclosure requirements. So that begs the question, why would Facebook go through all this trouble when the SEC is likely to shoot them down anyway?

The reason is that this move buys Facebook more time to grow after it has taken this $2 billion investment. The SEC regulation wouldn?t take effect until May 2012 because the commission requires private companies to start reporting financial information only four months after the end of its current fiscal year. So if Facebook violates the 500 shareholder rule in the first week of January, then it won?t have to start complying with SEC norms until May 1, 2012, four months after the end of the US?s financial year on December 31. If this SPV was formed in, say, November 2011, the deadline for compliance would have been May 2012 still. Doing this in the first week of the year buys Facebook precious time. A key lesson that Facebook would have learnt from its competitor?Google?is that, other things remaining equal, the more you delay the IPO, the greater valuation you command. Hence, time is of essence in a different sense?the more time you buy, the more moolah you rake in. At least that seems to be Facebook?s game-plan, given the pains it has taken to go the SPV way, and the near-perfect timing of the SPV at the start of the calendar year. For investors marking their calendars for a Facebook IPO, it could be a bit later than they think and a lot pricier than they expect.

The author, formerly with JPMorgan Chase, is CEO, Quantum Phinance