Zynga, Facebook spark 51% jump in value of top web start-ups

Zynga Inc and Facebook Inc led a 51 per cent surge in the private market valuations of top Web companies in the first quarter, according to Nyppex LLC.

Zynga, maker of the “CityVille” and “FarmVille” online games, rose 81 per cent in value from the fourth quarter to about $8 billion, Nyppex said on Friday in an e-mail. Facebook, the world’s largest social network, climbed 57 per cent to about $65 billion. The valuations are based on transactions among institutional investors.

As the top venture-backed Web companies stay private longer, some early stakeholders and employees are selling to investment firms including Goldman Sachs Group Inc and Russia’s Digital Sky Technologies. Demand for technology start-up shares is also growing in the mutual-fund industry, where T Rowe Price Group and Fidelity Investments are boosting their stakes.

LinkedIn Corp, the business-networking site that filed for an initial public offering in January, rose 43 per cent in value to about $2.2 billion, while Web daily-deal site Groupon increased 19 per cent to $5.6 billion. Twitter, the microblogging service, rose 7.7 per cent to $4 billion.

Nyppex, a Rye Brook, New York-based research and advisory services firm, tracks eight of the fastest-growing social-media start-ups, and produces reports for money managers, venture funds and corporations. Total valuations jumped to $86.1 billion in first quarter from $56.9 billion at the end of December, said Laurence Allen, managing member at Nyppex.

Allen estimates the value of secondary transactions will almost triple to $6.9 billion in 2011 from $2.4 billion in 2009. Secondary deals involve buying stock from existing shareholders, including employees, rather than directly from the company.

The market’s expansion has caught the attention of the US Securities and Exchange Commission. Regulators focused on the business after Goldman Sachs halted a planned offering of as much as $1.5 billion in Facebook shares to US investors. Goldman Sachs said on January 17 it pulled the offer because of concern that “immense media attention” could violate SEC rules limiting marketing of private securities. Goldman Sachs led the investment in Facebook that valued the company at $50 billion.

Mark Heesen, president of the National Venture Capital Association, called the regulatory concern a “major issue” at his group’s annual meeting in Boston this week. Arlington, Virginia-based NVCA has a standards committee and will be asking its 400 member companies to create their own policies on handling secondary offerings, Heesen said.