- Tools & Research
- Inc. Advisor
- Inc. Deals
Flickr Creative Commons/Getty
Flickr Creative Commons
Flickr Creative Commons
He Kept Not One, But Two, Board SeatsHe Was Smart About Stock StructureHe Settled LawsuitsHe Ditched His Co-foundersHe Refused to Sell He Poached the Best He Focuses on Products—Not Always BusinessHe's Not Intimidated By Wall Street
Facebook is inching closer to its public offering that will reportedly raise up to $13 billion, making it the largest IPO ever and pegging the company's valuation at $100 billion. Unlike many founders, Zuckerberg has managed to retain a significant stake in his company. The 28-year-old CEO will retain 57 percent voting shares, giving him a tremendous amount of control over Facebook's future as a public company. He also stands to rake in $1 billion in cash from the IPO. Here's what Zuckerberg did right to get to this point. (You should take notes.)
When Sean Parker became president of Facebook in 2004, he was careful to ensure that the young Zuckerberg retained a sizable equity stake in the company. When Facebook took on its first round of financing in 2005, for $13 million, Parker pushed for a high valuation of the company—about $100 million at the time. Perhaps more important, Parker set up the board structure so that Zuckerberg would have two seats, making it tougher for the board to give Zuckerberg a hard time. And when Parker was edged out of the company later that year, he gave his own seat to Zuckerberg.
In November 2009, Facebook's board of directors voted to establish a dual-class stock structure, moving the existing shareholders stock from Class A to Class B shares, which carry 10 times the voting power. Dual stock-structure doesn't necessarily give Zuckerberg final say in every decision, but his votes carry so much weight that it makes him an incredibly powerful player in the company—even apart from his status as founder and CEO.
Cameron and Tyler Winklevoss, Zuckerberg's classmates at Harvard, claimed that they had the original idea for Facebook, and that Zuckerberg, whom they hired as a developer, ran off with the idea. In a much-publicized trial, Zuckerberg settled with the twins for $65 million in 2008. It didn't end there. The "Winklevii" claimed they were misled by the company's valuation, but the settlement was upheld by a federal appeals court. In June 2011, the twins announced they would halt their appeals, deciding not to bring the case to the Supreme Court. "We've considered this case closed for a long time, and we're pleased to see the other party now agrees," Facebook said in a statement.
It may not be pretty, but part of Zuckerberg's huge success is attributable to the fact that his co-founders were pushed out early on, and left without taking huge chunks of the company with them. Take, for instance, Eduardo Saverin, Zuckerberg's college buddy and co-founder. As the site grew, Zuckerberg and Facebook's investors reportedly pushed Saverin out of the company by diminishing his role. In April 2005, Saverin sued Facebook—and Zuckerberg, personally. Saverin won, but he didn't get half the company. He got 5%.
With a $100 billion valuation looming, Zuckerberg's decisions to turn down multi-billion dollar offers for his company now seem brilliant. But back in 2004—and even in 2007—the right choices weren't so obvious. As early as 2004, Google had expressed interest in the company, and by March 2005, Viacom offered Zuckerberg $75 million for it. By 2006, Yahoo was offering $1 billion—as was AOL—and Viacom upped its offer to $1.5 billion. In 2007, Microsoft offered to invest in Facebook at a $15 billion, but Zuckerberg hardly blinked. Asked in a 2007 Fast Company interview why he hadn't sold, Zuckerberg responded, "I'm here to build something for the long term…Anything else is a distraction."
Facebook has always had a knack for hiring talent away from its competitors, most notably Google and Apple. One company blog, Redfin, even went so far to suggest that one-fifth of Facebook's employees were formerly Google employees, noting that of 2,174 current Facebook employees with a LinkedIn profile, 378 cited Google." Among the most notable: Sheryl Sandberg, Facebook's COO, who used to be Google's vice president of online operations and sales, and Bret Taylor, Facebook's CTO and the person responsible for the launch of Google Maps and Google Local.
Zuckerberg's insistence on building a really great product sage advice for entrepreneurs. After all, Zuckerberg learned it from the best. Reflecting on Steve Jobs' influence over his career, Zuckerberg recently told Charlie Rose that "Facebook has this mission that's really more than just trying to build a company that has a market cap or a value. It's like we're trying to do this thing in the world."
On the first day of his IPO Roadshow in New York City, Zuckerberg raised a few eye-brows by opting to wear his usual black hoodie and sneakers instead of a suit and tie. And on Day Two's session in Boston, Zuckerberg didn't even show up. Some called the move a snub to an American tradition, while one analyst called it a "mark of immaturity." But come May 18, Zuckerberg will almost certainly have the last laugh.
-- Eric Markowitz & Nicole Carter