Sans $2B offer, Facebook raises $25M

Facebook last week quieted rumors of a possible $2 billion buyout when it announced that it had raised $25 million in Series B funding.

Greylock Partners led the deal, and was joined by Meritech Capital Partners and return backers Accel Partners and PayPal co-founder Peter Thiel, current GP and co-founder of The Founders Fund.

Facebook, a Palo Alto, Calif.-based social networking company, has been the subject of much Silicon Valley speculation since a March 28 BusinessWeek article said that the company turned down a $750 million acquisition offer (which was believed to be offered by Viacom).

The article also said that Facebook was hoping to be acquired for upwards of $2 billion.

Facebook did not respond to the report, except to say that the author hadn’t contacted the company. Nonetheless, a number of articles and blog posts were written on Facebook’s possible value, particularly in light of the $570 million News Corp. paid for Intermix Media, owner of rival MySpace.

Jim Breyer, a general partner with Accel Partners and one of three Facebook board members, continued to decline comment on the BusinessWeek report, but he did say that Facebook has discussed several partnership possibilities with the goal of creating a leading, standalone company. He also says that the article did not affect fund-raising, which was getting finalized around the time of the story’s publication.

“All of the attention is a reflection on the fact that we’ve had few positive outcomes for consumer Internet companies, except for Google,” Breyer says. “People are looking for more of them, so they get very excited when reports come out about multi billion dollar valuations.”

But Facebook has a long way to go before justifying even its current valuation. Both it and MySpace generate fairly skimpy advertising revenue, while venture capitalists continue to fund an entire generation of possible challengers. Just last week, for example, three more social networking companies announced funding. They were stealth company 900 Seconds Inc., which raised $6.5 million from Trinity Ventures and Sutter Hill; Renkoo Inc., which received nearly $3 million from Matrix Partners; and Kaboodle Inc., which raised $3.55 million from Shea Ventures, Garage Technology Ventures, Alpha Group and angel investors Ron Conway and Rajeev Motwani.

Plus, Jonathan Abrams, who co-founded Friendster, is on the cusp of launching another new social networking site called Socializr, though the URL features nothing more than a cartoon. Abrams is reportedly not seeking venture funding for his latest startup.

Breyer acknowledges some market saturation, but believes that Facebook’s college student traction will continue to set its apart. He also believes that the market opportunity is large enough to house several successful players. “Both Facebook and MySpace will be plenty successful,” he says.