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SELLING A BUSINESS

How the Facebook-Oculus Deal Really Went Down

Hint: If Mark Zuckerberg invites your founding team over for dinner, it's on like Donkey Kong.
oculus ceo brendan iribe

Oculus CEO Brendan Iribe

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Brendan Iribe is beaming.

As he takes the stage at the f.ounders conference, a private gathering of tech-company leaders in New York City, on Thursday, his smile is so broad his interviewer, CNN's Laurie Siegal, repeatedly ribs him about it.

There's good reason: The startup that Iribe, along with three co-founders, has been working on for the past two years, just became Facebook's second-largest acquisition, to the tune of $2 billion.

That's no small feat for a company that began as the vision of a teenager living in a trailer in his parents' driveway in Long Beach, California. That teenager was Iribe's co-founder Palmer Luckey, who is now 21. Iribe says when he began working with Luckey, the Oculus Rift, the augmented-reality headset whose beta version they are selling and developing for consumers, was an idea that "we just thought would be a fun project."

Prior to working on Oculus VR, and becoming the company's genial CEO, Iribe was the chief product officer at Gaikai, a cloud-streaming company acquired by Sony in 2012. Oculus VR's two other co-founders are gaming-industry veterans with decades of experience: Laird Malamed, former senior vice president at Activision Blizzard, and John Carmack, best known for his roles in creating the computer games Doom and Quake.

The "fun project" raised $2.4 million in 2012 on the crowdfunding website Kickstarter to build its first augmented-reality goggles and release a developer kit to allow individuals to build software for the hardware, which was cobbled together from readily-available parts, largely from cell phones. It also raised venture-capital funding in 2013, for a total of $93.4 million in funding.

The acquisition by Facebook means a significant payout to venture-capital investors, as well as the team working on the Oculus Rift. (Sources report that Marc Andreessen, whose firm invested in Oculus and who sits on Facebook's board, recused himself from the negotiations.) On Thursday, Iribe explained how the deal with Facebook came about.

Turns out, it all started with a phone call.

Facebook founder Mark Zuckerberg last year got Iribe on the phone, and they had a 10-minute conversation, as Iribe recalls. They talked a bit about the business--but when it came to the hardware and virtual reality, Iribe says, he told Zuckerberg, "You have to see it to believe it."

At the end of 2013, Iribe says he was becoming friends with Zuckerberg, and his team made the trip from Irvine, where Oculus is based, to Menlo Park, California, where Facebook is. Around this time, they hooked Zuckerberg up to an Oculus headset, a beta headset for developers. Within a month, they hooked him up to a consumer-model prototype, which has no visual pixelization, and nearly no lag time in viewing. As Iribe recalls, Zuckerberg's response was: "So that was kind of one of the coolest things I've ever seen in my life. How can I help?"

Iribe says at the time he wasn't thinking that phrase meant money, but he came to the realization that funding would be increasingly important to his company, which relies on creating, making, and selling costly hardware. He knew Oculus would have to decide whether to attempt to raise additional VC funding in the coming year, or start looking for an acquisition.

While the Oculus team and board mulled its fate, Facebook acquired messaging startup WhatsApp for a staggering $19 billion in February.

Even during that lull in communications with Facebook, Oculus didn't "talk to other companies or shop it around at all," Iribe says.

Iribe and the founding team took another trip to Silicon Valley after the WhatsApp deal was solidified. They met with Zuckerberg and a core team at noon, and again over dinner at the Zuckerberg residence. Iribe says that's when it became clear everyone wanted to make a deal work out for Facebook and Oculus: "I don't know if he put anything in the dinner but...it felt like the right thing to do."

As for actually hammering out the terms of the deal, Iribe says that, as with any acquisition process with Facebook, the pace was breakneck and involved, essentially, locking the teams and their lawyers in an office at Facebook headquarters until negotiations were done. The $2 billion deal took three-and-a-half days to hammer out and was announced publicly March 26.

From Zuckerberg's statement:

After games, we're going to make Oculus a platform for many other experiences. Imagine enjoying a courtside seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face--just by putting on goggles in your home. 

This is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures.

After closing the deal, Iribe and his team went back to the Los Angeles area. He says he went to sleep: "I was hallucinating a bit." Only it wasn't virtual reality this time.

Last updated: Apr 11, 2014

CHRISTINE LAGORIO-CHAFKIN | Staff Writer | Senior Writer

Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.




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