DST, which invests mostly in Internet companies from Russia and Eastern Europe, has acquired Facebook preferred stock equivalent to a 1.96 percent equity stake.
The investment gives Facebook a $10 billion valuation, a third less than the value of the social-networking company when it sold a 1.6 percent stake for $240 million to Microsoft in October 2007.
In addition, DST plans to offer to purchase "at least" $100 million of Facebook common stock from existing common stockholders, the companies said Tuesday.
This would "facilitate liquidity for current and former employees' vested shares in the company," DST and Facebook said, adding that eligible participants would be notified of the plan details this summer.
The investments will not get DST a seat on Facebook's board or grant it special observer rights.
In November of last year, Facebook CEO Mark Zuckerberg said the company wasn't starved for money, as some pundits were suggesting at the time.
He also said Facebook officials didn't obsess about the $15 billion valuation of the Microsoft investment and didn't feel pressure to live up to it by modifying the company's business strategy.
Facebook's ad business was generating a healthy annual revenue of "hundreds of millions of dollars," Zuckerberg said at the Web 2.0 Summit in San Francisco.
Of course, since then, Facebook's growth has continued unabated, while online advertising's growth has slowed down considerably, affecting to different extents all major players, including Google, Yahoo and AOL.
Still, Zuckerberg went to great lengths during a press conference on Tuesday to stress that Facebook was under no financial pressure to take DST's investment.
"Our business is doing really well and we're on track to create a nice self-sustaining business," he said.
Facebook has been profitable on an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) basis for five straight quarters, and its revenue growth has been north of 70 percent year-on-year, he said. The company expects to be cash flow positive in 2010, something it would have accomplished even without the DST investment, he said.
"The financing will serve as a cash buffer to support our continued growth, allowing us to scale comfortably. Having a good cash cushion also gives us strategic options in the event we want to use them. We have no specific plans to talk about at the moment but it's nice to have the flexibility that having this extra capital will afford us," Zuckerberg said.
Facebook was approached by various potential investors but chose DST, which is based in London and Moscow, because its international expertise meshes well with the fact that 70 percent of Facebook's members are located outside of the U.S., the companies said.
Zuckerberg declined to explain how Facebook's preferred stock differs from its common stock structure, citing the company's privately held status. He also declined to provide details about DST's planned $100 million purchase of Facebook common stock.
In a story about DST's investment on Saturday, The Wall Street Journal, quoting anonymous sources, reported that DST's acquisition of common stock later on will be based on a $6.5 billion valuation of Facebook.
Neither Facebook nor Microsoft immediately responded to a request for comment regarding the type of Facebook stock Microsoft acquired back in 2007.
The $15 billion valuation Facebook got from Microsoft's investment came "at the absolute peak of the market," Zuckerberg said.
That Microsoft investment was also part of a broader partnership between the companies that also involves search and advertising, so it has to be viewed in that context as well, he said.
"This [DST] valuation is a fair and good valuation for us and we're happy about what it means for the company," Zuckerberg said.
It sounds inconsistent for a company to sell a stake to an investor while at the same time saying it doesn't need the cash, said industry analyst Greg Sterling, from Sterling Market Intelligence.
"If Facebook doesn't need the money, why did it take it?" Sterling said in a phone interview.
It's no secret that Facebook and other social-media providers like MySpace and Google's YouTube aren't generating revenue that is on par with their massive audiences, he said.
The unanswered question regarding Facebook is whether it is burning through its cash at a rate that its revenue and cash reserves are unable to sustain, Sterling said.
"The company does need the money," IDC analyst Caroline Dangson said via e-mail.
IDC estimates that Facebook will generate $500 million from advertising and virtual gifts this year, meaning that the company makes about $2 per user, she said.
"It's hard to value a company that is generating relatively little money compared to its overall size. We've observed valuations for Facebook fall since Microsoft's $15 billion last year. So Digital Sky Technologies is the first major investor to come to the table with the right amount of money and valuation for Facebook." Dangson said.
As he has in the past, Zuckerberg said that launching an IPO (initial public offering) isn't in Facebook's plans at the moment.
In addition to advertising, which is its biggest business, Facebook also expects in the future to generate significant revenue from micro-payments, he said.