Facebook Is Hunting for More Money

The social-networking site wants as much as $100 million in debt financing, sources say. Facebook's accelerating user growth carries huge tech costs

By Spencer E. Ante

Facebook, the fast-growing social-networking Web site, is one of the many companies looking for additional financing as banks and other lenders become increasingly careful about extending credit.

Over the past few weeks, Facebook has been trying to secure as much as $100 million in debt financing, according to two sources with knowledge of the proposed transaction. Specifically, the company is looking for a handful of credit lines that would help it finance leases for the growing number of computers it needs to run its popular Web site. Such leases are used by well-known companies, including Google's (GOOG) YouTube video service, and are a common way to finance equipment purchases in Silicon Valley.

Facebook has been shopping for credit from a number of large financial institutions, including Bank of America (BAC). The Charlotte-based bank, already Facebook's primary commercial bank, received $25 billion from the federal government as part of the effort to relieve the credit crisis. Facebook has not yet secured new debt financing from Bank of America or any other lender, according to the sources. It is continuing to try to line up credit lines for leases and is considering other forms of debt.

A Facebook spokesman says the effort is simply part of the normal course of business. Equipment leases offer lower up-front costs and certain other advantages over purchases. "Facebook always seeks to keep its costs of capital as low as possible, particularly in these uncertain economic times," the company said in a statement issued to BusinessWeek. "Along with other Silicon Valley companies, we rely on a range of tools to do so, including equipment lease lines to acquire equipment."

Questions About the Timing

Facebook's search comes after it lost access to additional credit from TriplePoint Capital, a venture lending firm in Silicon Valley. TriplePoint had extended Facebook a credit line of $100 million for equipment leases a year ago, but that line expired several months ago after Facebook had drawn down $60 million of the total, according to two sources familiar with the deal.

TriplePoint CEO Jim Labe says the company is in discussions with Facebook about its financing needs and may offer the company more credit at some point. "We continue to be their largest debt financing partner and hope to continue to be so in the future," wrote Labe in an e-mail.

Facebook's hunt for financing has led some Silicon Valley insiders to wonder why the company needs more money now. Gideon Yu, Facebook's well-respected chief financial officer, has already raised more than $500 million in debt and equity, an enormous amount for a startup. One important question is whether Facebook has enough money stockpiled to stick with its current strategy of emphasizing user growth over revenue or whether the company will have to dial back on growth in the face of the economic downturn.

The company declined to comment specifically on its cash position. A month ago, Facebook board member Peter Thiel told BusinessWeek the company did not need to raise any more money and had sufficient cash to continue at its current growth rate.