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Business Analysis & Features

The real power behind Facebook

Mark Zuckerberg may be its public face, but a coterie of early investors will be the real winners from a $100bn float

They are an unlikely set of friends. Yet the Russian physicist, Hong Kong tycoon, Silicon Valley billionaire and Wall Street veteran have been getting on famously since they all became members of the same exclusive club.

As Facebook prepares for a $100bn (£64bn) stock market flotation, a select band have already been given the chance to invest. In fact, they may be considering selling shares just as everyone else gets the chance to buy them.

Since Mark Zuckerberg set up the social media phenomenon in 2004, its ascent has been swift. People scoffed when Facebook's notional value reached $50 billion. When it debuts on Nasdaq, expected this spring after an intention to float announcement that could come in the next few days, it should be worth twice that amount. The only way its value has kept rising is by letting outsiders buy its stock. Facebook has needed little capital to fund its expansion.

But by selling stakes to investors from Hong Kong, Russia and in Silicon Valley, Facebook has been able to alleviate the pressure from long-serving employees keen to cash in. Certainly Mr Zuckerberg is one of those founders in no rush to collect. In 2006, he turned down a $1bn offer from Yahoo, a web firm whose star has tumbled as Facebook's has risen. He will be rewarded with a paper fortune worth $25bn.

Investors lucky enough to be invited into the inner circle also had to keep the faith that the company wasn't just an internet flash in the pan.

The statistics are certainly impressive. Facebook has more than 800 million active users, defined as those that check in at least once a month. Most log in more frequently, with half going on daily. There are over 30 million users in Britain.

If you believe the hype, the new wave of hot internet stocks to brave the public gaze in the past year, such as professional networking website Linkedin, have merely been the warm-up acts. That, at least, is what Facebook's early backers hope.

Four winners reaping the rewards

Yuri Milner

Yuri Milner, 50, is the shaven-headed Russian who attracted derision when his investment vehicle, Digital Sky Technologies (DST), sank $200m (£127m) into Facebook three years ago. DST's total outlay on Facebook has been more than $1bn. His 10 per cent stake will be worth close to $10bn when it floats. He tuned up his skills at America's Wharton School of Business. Returning to Russia, he set up a fund which backed what became Mail.ru, the country's largest email provider.

Li Ka-shing

The business activities of Li Ka-shing, 83, have never lacked vision. Hutchison Whampoa, his conglomerate, has been built on bricks not clicks, with his charitable foundation mainly responsible for internet investments. Hutch has become one of the largest foreign investors in Britain, owning the port of Felixstowe. His estimated 0.75 per cent stake in Facebook has risen in value sixfold, turning a $120m outlay into a paper fortune worth $750m.

Peter Thiel

Born in Germany but raised in California, Peter Thiel, 44, has become one of the best-connected business angels in Silicon Valley. He made his first fortune as co-founder and chairman of PayPal, the online payments firm that was sold to auctioneer eBay for $1.5bn four years after it was set up. Thiel became the first significant outside investor in Facebook, initially loaning $500,000 to Mark Zuckerberg that converted into a 10 per cent stake and was diluted to a reported 3 per cent. That still works out at a value of $3bn, a 6,000-fold return.

Steve Ballmer

It could have been the most profitable decision that Steve Ballmer has taken in 12 years as the chief executive of Microsoft. The computing giant paid $240m for a 1.6 per cent stake in Facebook in 2007, striking a deal to sell advertising outside the US for the company at the same time. That investment is worth $1.6bn today, a sevenfold increase. For Ballmer, 55, it shows he could keep up with the internet kids, even in a small way. Last year he scaled up Microsoft's internet and mobile activities at a stroke with an $8.5bn deal to takeover Skype, the internet telephony service that was once part of eBay.