Microsoft in talks over Facebook stake

The valuation being put on Facebook has soared above $10bn (£5bn) in the latest round of fundraising by the social networking phenomenon, and Microsoft is among the companies considering taking a significant stake.

Talks are at an early stage, but Microsoft is believed to have proposed buying about 5 per cent of Facebook, to try to solidify an advertising deal between the two companies and block the growing challenge from Google.

And Google itself is also rum-oured to be considering entering the bidding for a stake in Facebook, which was created less than four years ago as a way for Harvard university students to communicate and now has close to 40 million users worldwide.

Mark Zuckerberg, the 23-year-old founder, last year rebuffed takeover offers from, amongst other companies, Yahoo, which offered about $1bn. An outright sale is still not believed to be on Facebook's agenda and it was not clear last night whether the company was interested in accepting Microsoft's $300m-$500m investment. Neither side would comment on the talks.

Microsoft signed a deal last year to serve up the adverts that appear on Facebook pages, using its technology that targets ads based on particular keywords used on the page. Microsoft, Google and Yahoo are all battling for market share in this fast-growing section of the advertising business. The deal currently relates only to the US, and it will contribute about half of an expected $150m in revenue for Facebook this year, but it could be expanded if the relationship between the two companies deepens.

A fundraising at this point would allow Facebook's private equity backers to place a market valuation on the company, helping to smooth future acquisition talks or its path to an eventual stock market flotation. To date, it has raised more than $40m from outside investors, including PayPal founder Peter Thiel, and the venture capital firms Accel Partners and Greylock Partners.