About The Author
BEN MEZRICH is a graduate of Harvard University. He has published ten books including Bringing Down the House, Rigged and Ugly Americans. Bringing Down the House was the basis for the movie 21 which was released in spring, 2008. Mr. Mezrich is a columnist for Boston Common and a contributor to Flush magazine.
1. The FaceMash Experiment
Facebook was co-founded by Eduardo Saverin and Mark Zuckerberg who became best friends when they met as Harvard undergraduates in October 2003.
Mark Zuckerberg was a sophomore at Harvard in the fall of 2003. He was a computer science major from New York, the son of a dentist father and a psychiatrist mother. While at high school, Mark created a software program called Synapse. This was a plug-in for MP3players which allowed the device to learn a user’s preferences and then create tailored information. Mark had posted Synapse as a free download on the Web and this caused a number of major companies to contact him with offers to buy the software. It was rumored that Microsoft had made Mark a two-million dollar offer to go and work for them but impressively Mark had turned them down.
Eduardo Saverin, by contrast, didn’t know much about computers at all. He was a business major. During the summer vacation break, Eduardo had made three hundred thousand dollars by investing in oil futures with his brother utilizing an investment strategy based on meteorology. Eduardo’s family were Jewish and had barely escaped the Holocaust to move to Brazil before being forced to relocate again to Florida, where Eduardo’s father had become very successful in banking.
As Harvard undergraduates, both Mark Zuckerberg and Eduardo Saverin were outside the more popular student groups because they were different. To counter this, Eduardo was working hard to get admitted into the Phoenix – one of Harvard’s eight “Finals Clubs” which formed the university’s exclusive old boys network. In addition to being able to rub shoulders with future billionaires, power brokers and possibly even presidents, if you belonged to a Finals Club you got to spend weekend sat the best parties on campus surrounded by the hottest girls. It was this last point in particular – meeting girls – which appealed the most to Eduardo.
On a Tuesday night in the last week of October 2003, Mark and Eduardo went out with a couple of Asian girls Eduardo had met. Mark struck out and went back to his dorm room and opened up his Internet connection. He started browsing his dorm’s online housing facebook – the database of student photos for all the students which stayed in the same dorm as him. Mark was also e-mailing his friends and one of them suggested Mark should code a way of comparing the facebook’s student photos to come up with a list of who’s hot and who’s not. Another friend also suggested as a joke, you could compare someone from the facebook with a farm animal which was also an idea which appealed to Mark’s sense of humor combined with the fact he seemed to be striking out with the opposite sex at that time.
By 11pm that Tuesday night, Mark had realized he would need more pictures than his own dorm’s online database alone could provide if he was going to make this “hot or not” concept work. The solution was simple – he would hack into the Harvard University’s server and access the pictures from all the dorms on the campus. By 4:00 am the next morning, Mark Zuckerberg had downloaded thousands of pictures from Harvard’s dorms online databases to his laptop computer. Mark had even decided on a domain name for his project – he would call the site Facemash.com.
“Perhaps Harvard will squelch it for legal reasons without realizing its value as a venture that could possibly be expanded to other schools (maybe even ones with good-looking people). But one thing is certain, and it’s that I’m a jerk for making this site. Oh well. Someone had to do it eventually. Were we let in for our looks? No. Will we be judged on them? Yes.” – Mark Zuckerberg
About seventy-two hours later, Mark had Facemash.com up and running. It was an elegant Web site which allowed users to compare pictures of two undergraduate girls, vote for which one was hotter and then watch as algorithms calculated mathematically who were the best looking girls on campus. He e-mailed a few of his buddies to ask what they thought and headed off to his classes. By the time he returned a few hours later, he found word of Facemash.com had rapidly gone viral and in just under two hours, Facemash.com had logged twenty-two thousand votes for the hottest girls on campus.
“This wasn’t good. The link wasn’t supposed to go out like that. Mark had wanted to get some opinions, maybe tweak the thing a bit. He’d wanted to figure out what the legalities were of downloading all those pictures. Maybe he’d never have launched it at all. But now it was too late. The thing about the Internet was, it wasn’t pencil, it was pen. You put something out there, you couldn’t erase it. Facemash was out there. In a matter of minutes, he killed the damn thing, shutting it down. He had a feeling that he was in big trouble.” – Ben Mezrich
2. The Winklevoss Twins
The results of Facemash.com’s brief existence over one afternoon were genuinely impressive:
- Almost every women’s organization on campus came out against the Web site and expressed their disgust in no uncertain times.
- The university’s computer science department was up in arms because Facemash.com hogged all the university’s bandwidth.
- The legality of someone having access to other people’s pictures to use in this way was questioned.
- The Crimson, the Harvard student newsletter, carried lurid details about Facemash.com and its developer, Mark Zuckerberg. Many of the girls who were featured on Facemash sent Mark e-mails of complaint, letters and sometimes boyfriends across campus to get their message across.
Therefore, it was no great surprise when Mark was called to appear before Harvard’s ad board – the administration’s student disciplinary council. On the day he appeared, the ad board was made up of three deans and a pair of computer security experts.
Mark readily admitted his guilt and apologized for the controversy he had generated. To try and paint the episode in a more positive light, Mark did point out to the board his actions had illuminated some serious security flaws in Harvard’s computer system. To try and curry favor, Mark Zuckerberg even volunteered to help the various student houses fix some of these flaws in their computer systems. He also pointed out he had shut the down immediately when he’d learned it had gone viral and that he hadn’t meant anything malicious. If anything, Mark suggested it was more like a beta test gone wild.
Perhaps influenced by Mark Zuckerberg’s obvious social awkwardness, the deans decided not to expel him or even suspend him from Harvard. Instead, Mark was placed on a form of probation and was warned he would need to keep out of trouble for the next two years, or else. Mark wasn’t exactly sure what the ominous sounding “or else” meant in practical terms but at least it appeared like he was going to survive the Facemash incident without harm to his academic standing. His reputation with his fellow students, on the other hand, was another matter altogether. Mark thought if he had problems getting girls to go out with him before, he was going to have a heck of a time dating them now.
“Then again, people knew the name Mark Zuckerberg. The Crimson article had made sure of that. The paper even followed up the initial article about the Facemash debacle with an editorial about Facemash’s popularity, and how the number of hits the site had garnered showed there was interest in a sort of online picture sharing community – though maybe not one with such a negative bent. Mark had certainly stirred up the pot – that was something, wasn’t it?” – Ben Mezrich
Soon after the Facemash debacle, Mark received an e-mail from some other students at Harvard inviting him to come and work on one of their projects. These students were identical twins Tyler and Cameron Winklevoss and Divya Narendra whowere seniors at Harvard. Almost everyone on campus knew of the Winklevoss twins. For one thing, they were six-foot-five, blond athletes. For another, they were members of the Harvard rowing team with aspirations to make it to the Olympics. But it was generally the somewhat eerie fact they were almost exact replicas of each other which stunned people who met them.
Their friend Divya Narendra was less well known at Harvard because he wasn’t an athlete like the Winklevoss twins. Divya was more like their business partner. All three of them were members of the Porcellian Club, the most secretive Finals Club at Harvard. Members of the Porcellian Club were renown for going on to great commercial success after graduation. The Winklevoss twins and Divya Narendra had been working for two full years on the business plan for launching a new startup they called “The Harvard Connection”. The Harvard Connection was intended to be a Web site which would put Harvard’s social life online and make it easier for guys and girls to get together. It would be an online meeting place where Harvard students could find each other, share information and connect. The only problem was neither the Winklevoss twins nor Divya had the necessary computer skills to put their Web site together.
After Mark Zuckerberg had achieved fame and notoriety with Facemash, the Winklevoss twins and Divya decided to approach Mark and invite him to get involved in their Harvard Connection project. They sent Mark an e-mail:
“Hey Mark, I got your email from my friend. In any case, me and my team need a web developer with php, sql, and hopefully java skills. We’re very deep into developing a site, which we’d like you to be part of and a site which we know will make some waves on campus. Please call my cell or write me an email letting me know when you’d be free to chat on the phone and meet with our current developer. This should be a really rewarding experience, especially if you have an entrepreneurial personality. We’ll let you know the details when you respond. Cheers. Divya Narendra. Cc: Tyler Winklevoss.”
“I’m down to chat, but I need to deal with the aftermath of Facemash – so maybe tomorrow? I’m definitely interested in hearing about your project.”
Tyler Winklevoss and Cameron Winklevoss did meet with Mark Zuckerberg the next day (November 25, 2003) to talk about the Harvard Connection Web site. They suggested it would only require about ten to fifteen hours work to complete. Mark seemed to understand the idea straight away and appeared enthused about the project, so they added what they thought would be a great incentive for Mark:
“If the site is successful, we’re all going to make some money. But more than money, this is going to be very cool for all of us. And we want you to be the centerpiece of it all. This will get you back into the Crimson – but this time, the paper is going to be praising you, not trashing you.” – Tyler Winklevoss
3. The Genesis of Facebook
By the time Mark Zuckerberg and Eduardo Saverin got back to Harvard after the two-week winter break of 2003, Mark was brimming with enthusiasm for a newWeb site he wanted to build. This new Web site would be an extension of the Facemash experiment – an online social networking site which would be very exclusive. People would be able to create their own profiles complete with whatever pictures they wanted to upload. Users could then describe what they were interested in and what they were looking for online – friendships, love interest, whatever. Mark also suggested people could have the ability to invite their friends to join as well.
“I’m thinking we keep it simple and call it TheFacebook.” -– Mark Zuckerberg
In many ways, Mark’s brainwave took the features of Friendster (which was then already in use) and expanded on the idea so people could move their entire social network onto the Web. TheFacebook would be an amalgam of the best features of Facemash with the things Friendster already offered. It also had some elements of Course Match, an earlier project Mark had worked on which allowed students to see what classes other students were taking. Eduardo liked the idea immediately.
“Eduardo wondered when the genius moment had struck – when Mark was home, in Dobbs Ferry, over the holidays? While he was sitting alone in his dorm room, staring at his computer screen? In class? The one place he was pretty sure Mark didn’t have the stroke of genius was while hanging out with the Winklevoss twins. Mark had described the dinner meeting in full detail, as well as the site the Winklevosses thought Mark was working on for them. The way Mark had described it, it was little more than a dating Web site, a place for guys to get laid. A sort of highbrow Match.com. As far as Eduardo knew, Mark hadn’t actually done any work for the twins. He’d looked at their site, thought it through – and decided it wasn’t worth his time. In fact, he’d scoffed at it, saying the even his most pathetic friends knew more about getting people interested in a Web site than Divya and the Winklevosses.” – Ben Mezrich
Mark asked for some start-up money from Eduardo to rent the servers and to get the Web site online. Eduardo agreed to provide $1,000 to start the ball rolling, and the two friends decided they would split the company seventy-thirty with seventy percent to Mark. They even talked grandly about Eduardo becoming the company’s first CFO.
“Eduardo nodded. It sounded fair. It was Mark’s idea, after all. Eduardo would finance it, and make the business decisions. Maybe they’d never make any money off the thing – but Eduardo had a feeling it was too good an idea to just fizzle away. Kids all over campus were trying to build Web sites. Eduardo personally knew a dozen other students who were trying to launch online businesses from their dorm rooms. Lots of them had social aspects like the Winklevosses’ site – but none of the ones Eduardo had heard of were anything as cool-sounding as Mark’s idea. Simple, sexy and exclusive. TheFacebook had all the elements of a successful Website. A simple idea, a sexy function – and an exclusive feel.” – Ben Mezrich
Although Mark was starting to work intensively on his own Web site, for one reason or another he continued to give the Winklevoss twins and Divya the impression he was still enthused about and working on their Web site as well.He exchanged more than fifty e-mails and talked with them at least a half-dozen times on the phone. As the weeks went by, the twins were getting anxious because no progress had been made. When Mark did finally meet with them in person in mid-January, he talked about server problems and problems with some “front-end stuff”. The Winklevosses assumed he was getting a little burned out and decided they would look for a new programmer if Mark didn’t get his act together in the next month or so.
Of course, unbeknown to them, Mark was hard at work on his ownproject, TheFacebook. The domain name was registered on January 12, 2004 and Mark had lined up hosting for $85 a month. By early February 2004, Mark was skipping classes in order to finish coding for TheFacebook. He developed a simple and clean looking opening screen for the Web site which described it quite well:
[alert-note] Welcome to Thefacebook.com.
Thefacebook is an online directory that connects people
through social networks at colleges. We have opened up
Thefacebook for popular consumption at Harvard University.
You can use Thefacebook to:
• Search for people at your school
• Find out who are in your classes
• See a visualization of your social network
To get started, click below to register.
If you have already registered, you can log in.
To register at the site, you would need to have a Harvard.edu e-mail address. You could then set up your own profile page with pictures, attributes – year you’re in, your major, clubs you belong to, where you come from, a favorite quote – a list of friends, your relationship status and the all important matter of what you ‘re looking for.
“The thing that would drive this social network was the same thing that drove life at college – sex. Even at Harvard, the most exclusive school in the world, it was all really about sex. Getting it, or not getting it. That’s why people joined Final Clubs. That’s why they chose certain classes over other ones, sat in certain seats in the dining hall. It was all about sex. And deep down, at its heart, that’s what thefacebook would be about, in the beginning. An undercurrent of sex.” – Ben Mezrich
At the bottom of each page of TheFacebook.com. Mark inserted the line: “A Mark Zuckerberg production”. Eduardo had no problems with this at all since it was Mark who had been burning the midnight oil in order to get the site up and running. And so it was on February 4, 2004, TheFacebook.com went live for the first time. Eduardo sent out an e-mail to members of the Phoenix, his Finals Club, announcing the launch of the Web site and inviting them to register.
4. Early Growth
TheFacebook.com had more than 900 Harvard students register in its first four days of operation. Within two weeks, 5,000 people had signed up – almost 85 percent of Harvard’s undergraduates. Even more than that, TheFacebook was starting to become an integral part of everyone’s daily routine.
“You got up, you checked your Facebook account to see who had invited you to be their friend – and which of your invites had been accepted or rejected. Then you went about your business. When you got home, if there was a girl you saw in one of your classes – or even just somebody you’d met in the dining hall – you simply searched for her on Facebook, then invited her to be your friend. It was really such an amazing tool, lubricating the social scene – making everything happen much faster. But it wasn’t a dating Web site – the way Eduardo saw Friendster. For all its hype as a social network, Friendster – and MySpace, which was just beginning to catch fire nationwide – was really just about searching through people you didn’t know and trying to hook up with them. The difference was on Facebook you already knew the people you invited to be your friends. You might not know them well, but you knew them. They were classmates – or friends of friends, members of a ‘network’ that you could join, or be asked to join, by people you knew who were already friends.” – Ben Mezrich
TheFacebook was proving to be incredibly addictive for anyone who registered on it. They would come back again and again – which was great as far as Eduardo was concerned because that kind of stickiness was exactly the sort of thing advertisers would pay for. Admittedly, TheFacebook.com was just an expensive novelty at first but Eduardo was confident some kind of profit opportunities would eventually materialize.
Of course, all that was still in the future. In the immediate present was a letter which arrived by e-mail from a Connecticut law firm which stated:
It has come to our attention (Tyler, Divya and myself) that you have launched a website named TheFacebook.com. Prior to this launch, we had entered into an agreement with you under which you would help us develop our proprietary website (Harvard Connection) and do so in a timely manner. Over the past three months, you stalled the development of our website while you were developing your own website in unfair competition with ours, and without our knowledge or agreement. You have also misappropriated our work product, including our ideas, thoughts, concepts and research. We demand the following:
1. Cease and desist all further expansion and upgrades of TheFacebook.com; and
2. State in writing to us that you have done so; and
3. State in writing that you will not disclose to any third person our work product, our agreement, or this demand.
4. These demands must be met no later than 5pm Wednesday, February 11th, 2004.
Any failure to meet these demands will lead us to consider immediate action on both legal and ethical fronts. If you have any questions you are welcome to emailmeback or set up a meeting.
– Cameron Winklevoss
Mark casually informed Eduardo the letter had arrived the week after the launch of TheFacebook.com. Naturally, Eduardo was alarmed as this was the first he had heard of the cease-and-desist letter. He felt concerned they were proposing to shut the Web site down.
“Could they even do that? Sure, Mark had met with them, had e-mailed with them, had led them on. But he hadn’t signed any contract, and hadn’t written any code. And to Eduardo, TheFacebook seemed so different. Well, it was also a social Web site – but there were dozens – if not hundreds – of social Web sites. Hell, every computer science major on campus had a social Web site under development. Did that mean they could all sue one another? Just for having similar ideas?”
– Ben Mezrich
Even before Eduardo had become aware of the Winklevoss claim, Mark had sorted out a reply. He spoke with a friend who was in his last year at law school and sent a letter back to Cameron Winklevoss.
“Originally, I was intrigued by the project and was asked to finish the Connect side of the website. After this meeting, and not before, I began working on TheFacebook, using none of the same code nor functionality that is present in the Harvard Connection. This was a separate venture, and did not draw on any of the ideas discussed in our meetings. From the initiation of this project, I perceived it as a non-business oriented venture, with its primary purpose of developing an interested product to aid the Harvard community. I realized over time that my concept of the web site was not as it initially had been portrayed. When we met in January, I expressed my doubts about the site (where it stood with graphics, how much programming was left that I had not anticipated, the lack of hardware we had to deal with, the lack of promotion that would go on to successfully launch the web site, etc.) I told you I had other projects I was working on, and that those were higher priorities than finishing your web site.”
– Mark Zuckerberg
Now that Eduardo and Mark felt the Winklevoss thing was sorted out, they sat down and started figuring out how to handle TheFacebook’s ongoing growth. They decided to bring Mark’s roommates at Harvard into the fledgling company to help. Chris Hughes wouldbecome director of publicity. Dustin Moskovitz, an economics major and computer whiz, would assist with the computer coding. Eduardo would still handle the business side of the company and be the nominal CFO. Mark would be described in his own words as “founder, master and commander, and enemy of the state”. In line with this new management structure, the company’s shareholdings were also realigned with Mark dropping from 70 percent to 65 percent, Eduardo retaining 30 percent, Dustin Moskovitz getting 5 percent and Chris Hughes to get a percentage in the future once it was seen how much work was involved in what he did.
Now that more people were helping, Mark and Eduardo discussed opening up TheFacebook to other schools. They decided to target other elite schools first – Yale, Columbia and Stanford to begin with. It was clear TheFacebook had to keep growing to stay vibrant and the newly expanded management team got to work getting ready to do that.
Unfortunately, Mark and Eduardo were naive in assuming the Winklevoss matter had now been sorted out. The twins actually went and saw Larry Summers, president of Harvard University, alleging Mark Zuckerberg had violated the student honor code by stealing their idea and starting TheFacebook. They were unsuccessful in this and President Summers told them he didn’t see it as a university issue at all. He also told the Winklevoss twins the university was not equipped to handle this kind of dispute between students and that they should either work it out with Mark Zuckerberg or find some other way to deal with it as a legal issue.
“It was truly depressing. The president of the university was telling them that they were on their own. The administration was washing its hands of the whole thing. TheFacebook was a popular campus phenomenon. Mark was getting famous, his Web site was growing daily – and the president was basically endorsing his success. To Tyler Winklevoss – whether right or wrong – that damn kid had stolen his idea and made it his own. And if Harvard had its way, Mark Zuckerberg was going to get away with it.”
– Ben Mezrich
5. Sean Parker
TheFacebook’s growth was genuinely awe inspiring. Within eight weeks of its launch, 50,000 students from Harvard, Stanford, Columbia and Yale universities alone had signed up. Not only that but even more impressively most people who tried out TheFacebook came back again and again. They had found 67 percent of the people who signed up came back to the Web site every day to check out what was happening. These sorts of statistics were an advertiser’s dream so Eduardo lined up a handful of meetings with potential advertisers in New York to pitch them on the idea of advertising in TheFacebook. Having Mark come along to these meetings turned out to be a bit of a disaster, however, because he refused to dress in anything but fleece hoodies and flip-flops and he then proceeded to either sleep through the face-to-face meetings with advertisers or just sit there silently saying nothing when he was awake. The meetings didn’t generate any serious interest – partly because of the meeting dynamics but also most potential advertisers just couldn’t comprehend how addictive a social networking site aimed at college students was.
While they were in New York, however, they had arranged to meet with Sean Parker. Sean had contacted them a few weeks earlier when he saw some Stanford students who were using TheFacebook. Sean Parker was a well-known identity in Silicon Valley by virtue of the fact he had co-founded Napster with Shawn Fanning after meeting him in an Internet chat room while they were both still at high school. Napster had been a spectacular experiment in file sharing before the record companies had managed to get it shut down. Parker had then teamed up with a couple of other friends to start another company called Plaxo which was kind of a self-renovating online business card system. Plaxo was still going well but Sean Parker had been squeezed out of it by the venture capitalist he had introduced to the company in the first place – Michael Moritz of Sequoia Capital. Parker was looking for the next big thing to get involved with and he had requested a face-to-face meeting with the two co-founders of TheFacebook.
Sean Parker didn’t have any deep pockets since he had made almost nothing out of Napster and his wealth in Plaxo was still tied up in his shareholding in the company but he did have charisma. Sean and Mark in particular hit it off, since they were both computer nerds at heart. Most hackers considered Napster to be the ultimate battle and even though the hackers had lost this round, Napster was still considered to be the biggest hack in history, so Mark loved the idea of working with Sean Parker. Eduardo was much more skeptical of the potential value of this kind of working relationship to help TheFacebook grow.
“When Sean finally reached the last of his stories, he asked them about their most recent progress with TheFacebook. Eduardo started to explain they were now in twenty-nine schools – but Sean turned right back to Mark, asking him about the strategies they were applying to get the different schools to join up. Eduardo sat there, a little miffed, as Mark stiltedly explained their strategy by way of an example.He told the Baylor story – how the little Texan university had at first refused to adopt TheFacebook, because the school had a social network of its own. So instead of attacking Baylor head-on, they’d made a list of all the schools within a hundred-mile radius of it, and had dropped TheFacebook into those schools first. Pretty soon all the kids at Baylor were seeing all their friends on the Web site – and they practically begged for TheFacebook on their campus. Within days, the Baylor social Web site was history. Sean seemed really excited by the story.” – Ben Mezrich
After their first meeting, Eduardo described Sean Parker as a “snake-oil salesman” but Mark definitely liked Parker, almost idolized him. Regardless, TheFacebook had rapidly chewed through its first $1,000 of start-up money and it was clear more servers would be needed in the immediate future to handle growth. Mark and Eduardo also recognized they would need to hire some people to work on the programming. Eduardo therefore opened up a new bank account and deposited $10,000 into the account. Mark didn’t have any money so it was agreed they would rely on Eduardo’s funds for the moment.
The meetings with potential advertisers didn’t really generate much in the way of income for TheFacebook but its rapid growth was making more than Sean Parker alone sit up and take notice. Venture capitalists and representatives of major software and Internet companies started tracking Mark and Eduardo down on the Harvard campus. A number of times, these venture capitalists would sit through lectures they were attending to try and grab a few minutes of time to talk with them.
“Guys in suits had approached them in the Kirkland dining hall and at the library; one had even found his way to Mark’s dorm room, waiting outside for three hours for Mark to come home from a computer science department meeting. The attention was great, but the thing was, they weren’t offering real money yet – just the hint that there was money to be had. A few of them had thrown out big numbers with seven zeroes in them but nobody had made any real offers, and neither Mark nor Eduardo was inclined to take any of them seriously – even if they had been interested in selling out, which they hadn’t even discussed. At the same time, TheFacebook had now crossed 150,000 members, and was adding thousands more every day. If things continued like that, Eduardo was sure the site was going to be worth serious money.” – Ben Mezrich
6. Incorporating the Company
With the end of the school year, Mark and Eduardo decided they had better get more organized to handle the growth. TheFacebook was starting to look and feel more and more like a full-time job for them. People were using the site twenty-four hours a day now so some serious upgrading and ongoing maintenance was required. In addition, there was still the matter of securing advertisers some TheFacebook could start to pay its way and then make some real money.
Eduardo and Mark formally incorporated TheFacebook LLC on April 13, 2004, registering the company in Florida, Eduardo’s home state. The incorporation documents laid out the company ownership which had already been agreed: 65 percent to Mark Zuckerberg, 30 percent to Eduardo Saverin, 5 percent to Dustin Moskovitz and a yet undetermined percentage to go to Chris Hughes.
With the end of the school year, Eduardo accepted a summer internship at an investment bank in New York. He got the job partly because his father had helped arrange it and partly because this would allow him to pursue New York based advertisers for TheFacebook. Mark, on the other hand, decided he and Dustin would move to California for the summer and work on TheFacebook from Silicon Valley – which they considered was ground zero for the online world. Mark also wanted to work on another project called Wirehog which was a hybrid between file sharing and social networking. It was hoped Mark and Dustin would be able to merge Wirehog into TheFacebook as an application once it was up and running properly.
Eduardo was concerned that he’d be on the East Coast chasing advertisers while Mark was on the West Coast which was famed for its venture capitalists but Mark shrugged off his concerns. The goal for that summer was to expand TheFacebook’s reach from its current thirty schools to more than one hundred so their work was cut out for them, even without the added demands of their side project developing Wirehog. So despite his misgivings, Eduardo agreed to go along with what Mark suggested. He would run the company out of NewYork while Mark, Dustin and a couple of interns they would hire for the summer would do the coding in California.
“Maybe they’d make some good connections in Silicon Valley while they were there – connections that Eduardo could mine for the better advancement of the site. They were a team, and he would be a team player. In a few days, he planned to open a new Bank of America account in the company’s name. He freed up eighteen thousand dollars to deposit into the account and he was going to give Mark a package of blank checks to fund their operation in California. As the man in charge of the business side of the operation, it seemed the right thing to do. And anyway, in three months, they’d all be back at school – Eduardo entering his second year, Mark his junior – and life would continue. Maybe they’d be rich by then. Or maybe they’d be right where they were now, watching their company grow and grow. Either way, they were already far different from when they began this adventure, and Eduardo had no doubt that the future was going to be grand. He pushed any concerns away, because that’s what a team player did. There was no need to be paranoid. Truly, he asked himself, how much could go wrong in a handful of months?” – Ben Mezrich
7. California Dreaming
By a curious twist of fate – or serendipity – no sooner had Mark Zuckerberg got out to California when he bumped into Sean Parker again, almost literally. It turned out Mark had rented a house in Palo Alto from which to work which was half a block away from the home of the parents of Sean Parker’s girlfriend. Mark happened to be passing by as Sean was struggling to move some of his girlfriend’s furniture back into her parent’s house because she was in the process of moving home at the end of her senior year at Stanford.
Bizarre coincidence or not, Sean Parker wasted no time in catching up on the latest developments with TheFacebook. In fact, since Parker had been staying at his girlfriend’s place, he was temporarily homeless. Mark Zuckerberg responded to that piece of news by inviting Sean Parker to come stay with them as they continued work on TheFacebook. It was an opportunity Sean didn’t need to think about twice as he’d wanted to get involved ever since the first time he’d seen the Web site. The chance to stay with the guy who had created it was something beyond belief.
From Mark’s perspective, Sean Parker was a worthwhile adviser to have around. He knew the lay of the land and who all the important players were in Silicon Valley. His earlier experience with Napster and Plaxo also meant he knew what it took to build a technology based company from the ground up. All in all, it was easy to view this as the perfect match up – although Mark knew Eduardo viewed Sean Parker as dangerous and a loose cannon.
“Sean was happy to see the team Mark had assembled were perfect engineering soldiers; brilliant, all of them, even the interns – Stephen Dawson-Haggerty and Erik Shilnick, both freshman computer science majors, experts on Linux and front-level coding. Along with Dustin and Andrew McCollum, Mark had the makings of a real brain trust. The work ethic in the house was spectacular; almost literally, the group programmed night and day. From noon to five in the morning, coding away, adding colleges one after another to TheFacebook, working out the kinks, adding applications, and developing Wirehog. They were a top-notch crew, possibly the best start-up raw materials Sean had ever seen.” – Ben Mezrich
Sean was also surprised Eduardo Saverin wasn’t there as well. Considering he was running the business aspects of the Web site, it was surprising that he wasn’t there in the thick of the action. Sean concluded that maybe Eduardo was more of an early-stage investor than someone who lived and breathed the project like Mark. It was clear to Sean Eduardo was going to miss out on the next stage of the company which was something he had seen happen all the time in Silicon Valley. When something is growing as fast as TheFacebook was, you either plunge in with all your heart and soul or you get left in the dust.
Meanwhile, over in New York, Eduardo didn’t even last one day in his internship. He sat down in his assigned cubicle, looked at the pile of stock valuations he had been assigned to analyze and realized he didn’t need to learn about becoming an investment banker. Eduardo suddenly knew he should be putting his efforts into building the business he and Mark had cofounded in the Harvard dorms, so he started pounding the New York pavement talking with potential advertisers, software markers and anyone who expressed any interest in TheFacebook. Within a month, he was able to land an advertising deal with a company and he flew out to Silicon Valley to update Mark on progress.
There was lots to talk about. TheFacebook was now nearing five hundred thousand members – meaning more servers would be required to keep up with demand. It was also clear the company would need to hire some full-time employees soon. The company was still running off the $18,000 he had provided so there were lots of pressing matters to discuss. However, when Eduardo arrived in California, he found Sean Parker had teed up four days of wining and dining with potential investors, some of them Silicon Valley’s heavy hitters.
“It turned out there were a lot of people interested in TheFacebook. In fact, they were being ferociously courted by all the major players in town. Something had changed, and now there were real offers being bandied about, numbers in the many millions being whispered in their ears. And the wining and dining
was beyond excessive. They were brought to the nicest, most expensive restaurants in San Francisco; often, the interested parties sent limos for them, or had them picked up in gleaming SUVs. When Mark couldn’t get his car to start one morning, and ended up making them late for a breakfast meeting, the venture capitalist they were supposed to meet had offered to buy him an SUV. Eduardo knew the man was serious – the next time he came out, he fully expected to see Mark in a new car.” – Ben Mezrich
8. The Falling Out
Eduardo only stayed in California for three days and then went back to New York to keep looking for advertisers for TheFacebook. When he rang Mark to report progress about a week later, Mark was dismissive of what Eduardo was attempting to do. Mark suggested he should come back to California because everything TheFacebook needed could be found there but Eduardo didn’t like that idea.
“He crashed out a letter reiterating his and Mark’s business relationship; specifically, he’d respelled out the agreement they’d made when they started TheFacebook, that Eduardo was in charge of the business side of the company, and that Mark was supposed to be out in California working on the computer code. Furthermore, Eduardo had added that since he owned 30 percent of the company, he had the power to keep them from accepting any financial deals that he did not agree with. Mark had to accept that reality – and Eduardo wanted written confirmation that he could run the business side of things as he saw fit.” – Ben Mezrich
When he received the letter Mark Zuckerberg called Eduardo Saverin and told him everything was going great and there was no need to bicker over inconsequential stuff. Mark again suggested Eduardo should come out to California but Eduardo still felt like his role was being understated. Eduardo therefore decided he would do the only thing possible to send Mark a message and he froze the company’s bank account.
With his funding cut off, Mark certainly got the message and he swung into action with Sean Parker’s help. Sean introduced him to Peter Thiel, the founder of the highly successful company PayPal and head of Clarium Capital. Thiel met with Mark and Shawn and three hours later had agreed to invest $500,000 for about seven percent of the now newly reincorporated company TheFacebook LLC. Thiel called this half-million dollar investment “seed money” and promised he would invest more in the future as the need arose. Thiel would also get a seat on the five-man board of directors of the new company as well as his shareholding.
Armed with this money, Mark Zuckerberg and Sean Parker swung into action. They rented a new five-bedroom house in Los Altos, California from which to work – partly because they needed more room and partly because the landlord of their previous rental had terminated their lease. Neighbors had complained about Mark and the others climbing on the roof of the house to jump into the pool and playing music too loud. The fact Mark had set up a zip line which enabled he and his friends to fly around their house before plunging into the pool had also been something of a concern for the landlord. Mark had also decided by this stage he would not be returning to Harvard when the summer ended but would stay on in California to keep developing TheFacebook. His old roommate Dustin Moskovitz also decided to do the same.
Eduardo, by contrast, went back to Harvard to finish his degree. About eight weeks into his senior year, Eduardo flew to California at Mark’s request to sign some new incorporation papers which would restructure the company now that Thiel was on board.
“The rocky few weeks of summer seemed almost forgotten now. They’d had it out on the phone a number of times – arguing like any two friends might, who were involved in something bigger than either of them had really expected – but they’d come to a sort of detente, finally agreeing that the important thing was the company, that it continued to move forward in a smooth fashion. This was business, and they were friends; they would find a way to work things out. Mark convinced Eduardo that the company was getting too big for one person to control all the business side of things, that it was simply impossible what he had been demanding. As things continued to grow – they were closing in on 750,000 users now, heading towards a million! – Mark and Dustin were taking time off from college and they were also planning on hiring a sales executive to pick up the slack, handle some of the things Eduardo had been working on in New York. They were also rapidly adding functions to the site – some of them quite incredible. In the end, Eduardo, after having calmed down a bit from his burst of anger in July, had come to the conclusion Mark was going to do things Mark’s way.” – Ben Mezrich
On his next trip to California in late October 2004, Eduardo was given four big documents to read and sign. Two were common stock purchase agreements exchanging his shares in TheFacebook LLC for stock in the newly incorporated Facebook Inc. At the end of the transaction, Eduardo would have 34.4 percent ownership, Mark 51 percent, Dustin 6.81 percent, Sean 6.47 percent and Thiel around 7 percent. The documents had a vesting schedule which meant Eduardo would not be able to sell any of his Facebook shares for a long time. Also included in the documents was a general release of claims against Mark and the company which stated the new papers detailed his position at Facebook in its entirety. Eduardo figured the lawyers who were handling this reincorporation were working for him and pretty much signed the agreements on the spot without too much more thought. After a quick visit, he headed back to Harvard to get on with his studies.
9. Going Separate Ways
By April 2005, Facebook was continuing to make impressive progress. The Web site had sailed passed the one million members mark, zoomed passed two million and wasnowclosing in on three million members. It was now in over five hundred campuses and seemed to feature in every magazine at the newsstand and on every new show. It seemed like everyone was part of the Facebook juggernaut.
Mark e-mailed Eduardo in early April asking him to come out to California for an important business meeting and to train a new hire. He mentioned some major venture capital firms had expressed interest in Facebook and there was a chance one of these funds would be investing soon. Mark also casually mentioned he, Dustin and Sean were thinking about selling some of their stock – about two-million dollars apiece if the deal went through. This was a real wake-up call to Eduardo because his stock purchase agreement had included a long vesting period before he could sell. He had naively assumed Mark, Dustin and Sean had similar restrictions on their ownership stakes, but apparently that was not the case. Eduardo decided he’d better make the trip out to California to attend the business meeting and reestablish his role as Mark’s founding partner.
However,whenEduardo arrived in California on April 4, 2005, he went to the new Facebook offices and was met by a lawyer. Mark was nowhere to be seen and the lawyer insisted the documents had to be signed immediately.
“As Eduardo started to read the legalese, he realized that his trip to California wasn’t about a business meeting. This was an ambush. To Eduardo, this was a betrayal, pure and simple. Mark had betrayed him, destroyed him, taking it all away. It was all right there, in the papers in his hands, as clear as the pitch-black letters imprinted on those ivory-white pages.” – Ben Mezrich
Eduardo was given a document which increased the number of shares in Facebook up to almost 21 million shares dated March 28. There was also another document issuing 3.3 million shares to Mark Zuckerberg, 2 million shares to Dustin Moskovitz and more than 2 million shares to Sean Parker. Eduardo immediately realized he was in effect being diluted out of the company. His current 34 percent shareholding would be diluted to a very small percentage by the issue of the new shares.
“The lawyer droned on, explaining the new shares were necessary, that there were interested venture capitalists who would need them, that Eduardo’s signature was a formality, that the shares had already been authorizedanyway, that it was good and necessary for the company, that it was a decision that had already been made – ‘No’. Eduardo refused to sign away his ownership of Facebook. He refused to sign away his accomplishment. He had been there in the beginning. He had been there in the dorm room. He was a founder of Facebook and he deserved 30 percent. He and Mark had an agreement.” – Ben Mezrich
The lawyer responded by pointing out to Eduardo he was no longer a part of the management team, was not an employee of the company and was only connected to the company by his early shareholding in Facebook. It was almost as if Mark Zuckerberg had expunged Eduardo Saverin from Facebook’s corporate history altogether. Eduardo couldn’t believe what he was hearing and left the Facebook corporate offices to head back to Harvard without even getting to see Mark.
While Eduardo was going through all this, Mark and Sean were busy in the background continuing to grow Facebook. Almost every one of Silicon Valley’s most prestigious venture capital firms were clamoring to invest in Facebook. Mark and Sean eventually chose to go with Accel Partners.
“Very soon, Accel was going to invest close to thirteen million dollars for a small stake in the company – an investment that would put Facebook’s valuation at close to one hundred million dollars. After only fourteen months. One hundred million dollars. And that, too, was just a starting place. Within six months, Sean was certain they would triple that valuation. By the end of 2005? Who knew where they could be? If people continued to sign up at the current rates, they’d be at fifty million users within a year. Sean had a pretty good feeling his billion-dollar baby was about to be birthed.” – Ben Mezrich
As Eduardo headed back to Harvard to finish his degree, he also begun the legal process of suing Mark Zuckerberg and Facebook for his 30 percent stake in the company. While he hated the idea of coming up against his friend Mark in court, there seemed no other way to resolve the matter.
“Facebook had been Mark’s idea in the beginning, after all. He was the one who’d put in the hours, put in the work. He’d built the company from the dorm room up. He’d written the code, launched the site, gone to California, postponed college, found the funding. To him, it had been a Mark Zuckerman production from day one. And everyone else was just trying to hang on. The Winklevosses. Eduardo. Maybe even Sean Parker. In fact, from Mark’s point of view, it was probably Eduardo who had acted inappropriately, who had betrayed their friendship. But Eduardo didn’t see it that way. He believed, fully and completely, that he had been there from the beginning. That he had been integral to Facebook’s success. He had put up the initial money. He had put in his time. And he deserved what they had agreed upon. Pure and simple.” – Ben Mezrich
Facebook continued its spectacular growth unabated. Facebook introduced a picture-sharing application which allowed users to take pictures, tag the people they wanted to meet and then let them get in touch with each other – sort of like moving a real life social scene into digital format. This development was introduced when Facebook had around eight to ten million members. The company was also working on adding a newsfeed which would constantly update people within a social network.
“These were more than just applications – they were milestones in the making, changing what began as a dorm-room idea into a life-changing, billion-dollar company. Building the biggest, most successful picture-sharing site on the Web on top of the most successful social network? Adding an innovation like a newsfeed on top of that? Facebook was going to be bigger than anything else on the Web. Someday soon, they’d open it up to the general public – the next, great transformative step, the next milestone – and then they’d go international. And after that, well, nothing would ever come close to Facebook again. Facebook would be that big.” – Ben Mezrich
Mark Zuckerberg had installed Sean Parker as president of Facebook at the time the company was reincorporated as part of the first round of funding in October 2004. He served in that position until September 2005 when he was arrested for being at a party where alcohol and drugs were being provided to underage youth.
“Sean Parker was a genius, and he’d been instrumental in getting Facebook to where it was now. Sean Parker was one of Mark’s heroes, and would always be a mentor, an adviser, and maybe a friend. In some people’s eyes, the current situation would make Sean a danger to Facebook. To his detractors, he had always been unpredictable, wild – people didn’t always understand him and found his energy level terrifying. But this was different. This was black and white. No matter why it had happened – whether it was bad luck or something else – the result was as clear as data in, data out. Sean Parker had to go.” – Ben Mezrich
Sean Parker left Facebook and has gone on to become managing partner at the Founder’s Fund, an early-stage investment firm which has been created by Peter Thiel. It is now estimated that Thiel’s $500,000 investment in Facebook is worth more than one-billion dollars and the Founder’s Fund is an attempt to replicate that kind of success.
From Mark Zuckerberg’s perspective, Facebook is nothing less than a revolution. It has the power to change the world simply by enabling the free exchange of social information across the Internet. This is entirely Mark’s baby and he won’t let anything, or anyone, stand in the way of Facebook’s ongoing success.
In October 2007, Google and Microsoft engaged in a highly public battle to invest in Facebook. Microsoft ultimately ended up buying a 1.6 percent stake in Facebook for $240 million – in effect giving Facebook a market valuation of more than $15 billion. This market valuation is around 100 times its 2007 revenues of $150 million.
“Facebook has continued its almost startling pattern of growth. By the end of 2009, Facebook’s membership will be well over two hundred million users, and according to recent reports, the company is gaining around five million users a week. Highly publicized missteps, such as near debacles involving issues of the ownership of user content and the misuse of ‘private information’ for advertising purposes, have not slowed the social revolution at all, and it seems likely Facebook will continue to enhance the lives of an enormous number of people for years to come.” – Ben Mezrich
After being launched in February 2005, Facebook has grown from being a dorm-room project into one of the most influential companies on the Internet. While it is unclear just how much Mark Zuckerberg is now worth, he has accurately been described as one of the youngest self-made billionaires of all time. As of 2009, Mark is twenty-five-years old.
Eduardo Saverin graduated from Harvard and has gone into investment banking. His lawsuit against Mark Zuckerberg and Facebook remain unresolved as at the end of 2009. In January 2009, he was, however, reinstated as a co-founder of Facebook in Facebook’s corporate history which would suggest at least part of his lawsuit has been resolved. Any other financial details of any settlement remain shrouded in secrecy.
The Winklevoss twins, Tyler and Cameron, did make the U.S. Olympic Rowing Team and they competed in the 2008 Beijing Olympics where they placed sixth in the men’s pairs competition. They have continued their training and as of late 2009 have not yet decided whether or not they will compete in London in 2012. They also pursued their legal case against Mark Zuckerberg and Facebook and they reached a settlement in the summer of 2008. The details of the settlement were sealed but in recent times, information has circulated which suggested they received a payout of around sixty-five-million dollars. By all accounts, they were still not happy with this and it appears their legal battle with Mark Zuckerberg might be ongoing.
Mark Zuckerberg has joined Bill Gates as one of Harvard’s most famous drop-outs. Like Bill Gates has said: “If Microsoft didn’t work out, he could always go back to Harvard.” If Facebook doesn’t work out, Mark Zuckerberg can always go back to school, but that doesn’t look likely anytime in the immediate future. In fact, the big question everyone is asking nowis whether or not Facebook will ultimately end up eclipsing Microsoft and Google to become the most valuable technology company in the world. Facebook really is a revolution with the power to change the world. How its future end up unfolding will be interesting to see.]]>