Facebook has raised $500m from Goldman Sachs and Russian investment firm Digital Sky Technologies, in a deal that values the world's number one internet social networking company at $50bn, according to a source.
The firms also plan to raise at least $1bn in additional funding for Facebook.
The funding, which gives Facebook a richer valuation than established internet giants such as Yahoo and eBay, underscores the high hopes investors have riding on the new breed of private web companies.
It comes as the Securities and Exchange Commission has begun to look into the trading of shares in private companies such as Facebook and Zynga, according to media reports.
Facebook, whose online service counts more than a half a billion users worldwide, has shown little interest in floating shares to the public, even as investors clamour to get a piece of the company that many believe could become the next Google.
By raising money from private investors, Facebook can reap many of the benefits that traditionally require undertaking an initial public offering without facing the added scrutiny of the public markets, said Jeremy Liew, managing director at venture capital firm Lightspeed Venture Partners, which is not a Facebook investor. "I don't think it's a replacement for a public offering, I just think it's a mechanism for delaying it," said Mr Liew.
Among the key benefits of raising money privately is the ability for early employees to cash out some of their stock holdings.
Last week, online-coupon site Groupon disclosed in a regulatory filing it was raising $500m, with plans to use the bulk of the funds to repurchase shares from existing shareholders.
Facebook arranged for DST to purchase at least $100m of common shares from its employees in the summer of 2009, following a separate investment in which DST bought $200m of Facebook preferred shares at a $10bn valuation.