UPDATE: We’ve tweaked the story to reflect comments from entrepreneur Sean Parker, who tells us Thefacebook hasn’t finished raising its round of venture capital yet.

Thefacebook, a Palo Alto-based social networking site popular among college campuses, is apparently close to raising its first round of funding. An article in PE Week today reported that sources estimate the investment at between $10 million and $12 million, and that the lead investor was Accel Partners. But Sean Parker, an entrepreneur who works for the company, said it’s too early to speculate about amounts and precise investors.

If it were true, that’s a good-sized bag of money for a site that has already gotten traction through viral marketing. It would show the sector is still hot, despite being real crowded. Maybe this explains why Parker was bubbling over with excitement when we bumped into him last week. He’d hinted a funding was in the works, but dashed off before we could plug him for more details…

…PE Week suggests this is “a coup” for Palo Alto’s Accel Partners, but we’re not so sure. The article didn’t name any sources by name, and hey, if Accel pays a high price for its ownership stake in Thefacebook, it deserves to get in.

PE Week, which is usually accurate, got a few other things wrong. Parker doesn’t have a house in Los Gatos. And Accel has invested in social networking companies before, namely, UUME, a Chinese version of Friendster, the early social networking company. Friendster was backed by, among others, angel investor Ram Shriram, and PE Week notes Shriram was a candidate to invest in Thefacebook. Yet there’s an obvious reason he wasn’t: He was partly responsible for Parker’s prior ouster from Plaxo. Mark Zuckerberg, who launched Thefacebook in February 2004 at Harvard, actually runs the company. Though here’s another interesting tidbit from the PE Week piece, but it bungles a clear reference to the source:

The site competes against ConnectU.com, another social networking site for college students. Zuckerberg worked at ConnectU prior to founding Thefacebook, and he (sic) the site has filed a lawsuit again him.

Kind of reminds us of the Orkut vs. Affinity Engines dispute, two other Silicon Valley-based social networking sites whose roots stem from the university campus.

With lawsuits flying, and such a crowded market, this is bound to be an interesting sideshow.