Context
In April 2004, Mark Zuckerberg, a Harvard sophomore at the time, co-founded the social media platform Facebook, alongside his roommates Eduardo Saverin, Andrew McCollum, Chris Hughes, and Dustin Moskovitz. Over the course of the following year, Zuckerberg faced a lawsuit from former friend and co-founder Eduardo Saverin, who alleged that Zuckerberg had cheated him out of his fair share of the company’s profits. The legal battle was eventually settled out of court, but how much did Saverin sue Zuckerberg for?
Background of the Suit
When Saverin and Zuckerberg initially founded Facebook, they each had at least 30% of ownership in the company. As the website experienced immense success, especially around the same time that Facebook opened to the general public in 2006, other investors approached the company. This led to Zuckerberg diluting Saverin’s stake in the company until Saverin eventually held only 0.03% of the company by the time the lawsuit was filed in 2004.
The multi-million dollar lawsuit Saverin filed against Zuckerberg framed the legal dispute as a contract and claims of misappropriation of funds. Saverin’s allegations included breach of fiduciary duty and breach of contract, claiming that Zuckerberg had deliberately manipulated shares of the company. He alleged that Zuckerberg had never offered him the chance to match the terms of the investment offers made by later investors and had tried to dilute Saverin’s shares to decrease his stake in the company.
Settlement
In 2009, Zuckerberg and Saverin came to an agreement in which Saverin was to be paid settlement fees for his contribution to Facebook. While the terms of the settlement have never been released, observers have estimated that Saverin received at least around $900 million for his stake in the company after taxes. As part of the settlement, Saverin also agreed to withdraw his lawsuit against Zuckerberg.
In addition to the monetary settlement, a few other changes to the company structure were made. Saverin’s name was removed from the list of co-founders and his shares were reclassified as common stock. Saverin had also ceased to be involved in any parts of the Facebook operation before the lawsuit had been settled.
Implications of thesuit
The lawsuit between Facebook’s co-founders shed light on the issue of how disagreements among the co-founders of the company are often more complex than they appear on the surface. This lawsuit was not the only case of Zuckerberg and Facebook coming up against legal disputes arising from the founding of the website. In 2007, other unemployed co-founders such as Chris Hughes, Andrew McCollum, and Dustin Moskovitz, filed suits against Zuckerberg for a larger share of the company, though the lawsuit was settled out of court in 2008.
The legal battle between Saverin and Zuckerberg also helped highlight the controversial exits that sometimes occur from technology startups, which have become increasingly commonplace in a sector of the start-up world where money and equity stakes are heavily sought after. By filing for a lawsuit after settling for a 9-figure buyout, Eduardo Saverin became one of the most famous startup ‘bad guys’ of Silicon Valley.
Impact on Zuckerberg and Facebook
Though the settlement against Saverin was costly, it was a much smaller amount than what the company would have had to pay should they have gone to court and lost the case. Even still, the legal dispute between Saverin and Zuckerberg created a way for Zuckerberg to be perceived in a much more negative light for future major investors and partners. Since his company was no longer financed by friends, Zuckerberg needed to start from scratch to build up a reputation of being a trustful and reliable partner.
For Facebook, the lawsuit and subsequent argument surrounding it averted much of the public’s attention away from the website’s success and towards their founders’ conflicts. This certainly took away some of the public’s interest and excitement towards it.
Short-term Impact of Pay-out
In the short term, the pay-out had a significant impact on Saverin. As he owned 30 percent of the company before the lawsuit, the nine-figure pay-out amounted to a 1000-percent return on his original investment. As such, the payout turned Eduardo Saverin from a billionaire-in-the-making to an actual billionaire Billionaire.
Of course, gaining such an immense pay-out did not come without a cost for Saverin. Since much of the money paid to Saverin derived from Zuckerberg’s stake in the company, it’s likely that the payment decreased Zuckerberg’s stake in the company significantly. As such, the pay-out was clearly a bittersweet moment for both parties.
Long-term Impact on Saverin
In the years following the lawsuit and subsequent settlement, Eduardo Saverin had become more active in the business sector. On the back of his large settlement, he has since become a venture capitalist, investing in several technology and start-up companies around the world. As of 2021, Saverin’s net worth is estimated to be at around $14 billion.
Without his hefty settlement, it’s almost certain that Saverin would not have been so heavily invested in the technology and start-up industry. The money granted to him from the payout allowed him to become a venture capitalist and gain real success within the sector.
Conclusion
So, how much did Eduardo Saverin sue Mark Zuckerberg for? The exact amount of the settlement remains undisclosed, however it is estimated to be around $900 million. While both benefited greatly from the resolution of the lawsuit it is clear that the settlement granted Saverin many more financial possibilities and access to venture capital investments that have seen him become one of the most successful billionaires of our modern era.
