Mark Zuckerberg and Eduardo Saverin were Harvard roommates who had a shared dream of creating a social media empire. Their story began when Mark dropped out of Harvard and enrolled in a startup incubator in Palo Alto, California, to work on his new idea for a social network. During this time, Eduardo provided the initial funding for the project, and together they launched the site as “Thefacebook” in 2004.
In those early days, Saverin served as the business manager and a cofounder to Facebook. He came up with the idea to market the social network to college students. In an early agreement, their respective roles were divided: Saverin in charge of business and revenue, and Zuckerberg managing product development and management of the website.
However, over the years, Saverin’s role became less and less essential to Facebook’s success. In early 2006, Zuckerberg made moves to dilute Saverin’s equity without his knowledge. He brought on investment from other investors, significantly reducing Saverin’s shares. He also brought in Peter Thiel, who took an advisory role and eventually increased his role with the company. Zuckerberg convinced Saverin to sign a new agreement which gave Zuckerberg nearly all of Saverin’s voting rights.
Saverin invested over a million dollars in the project, and Facebook was valued at $3 billion in 2007. As of 2019, Facebook is estimated to be worth over $300 billion, with Mark Zuckerberg as the founder and majority shareholder.
The lawsuit between Saverin and Zuckerberg further ignited media attention toward their story and the company. The case concluded in 2012, with Saverin settling and receiving 4 percent in Facebook stock, a majority of which he sold later that year. Reports say that the payout was worth around $100 million. Beyond the financial settlement, the case had a major impact on the public and media perception of Zuckerberg.
Since their legal battle, Zuckerberg and Saverin have publicly discussed the case and their relationship to one another. In interviews, Zuckerberg has described Saverin as a friend and great business partner who was essential in Facebook’s early growth stages.
Effects of the Split
The dispute and its eventual outcome had major implications for Zuckerberg, Saverin, and the nature of their relationship as business partners. The effects of the split were both visible and psychological.
From a psychological standpoint, the fallout of the battle placed a strain on the relationship between Zuckerberg and Saverin. Business best practices were thrown out the window as they competed and butted heads to acquire a greater share of the company. The fallout resulted in the loss of a valuable business partnership, and brought about a newfound mistrust among founders of startups.
From a tangible perspective, Saverin was able to leverage his settlement to become a major investor, trumping Zuckerberg’s majority stake in the company. The tension between the two participants was undeniable, yet together they built Facebook into the company it is today.
Viewed from a wide angle, the story of Mark Zuckerberg and Eduardo Saverin is telling of the competitive yet collaborative nature of Silicon Valley startups. Temperament and aggression between business partners is often a product of the startup world, especially when the stakes are as high as they are for founders and people in charge of massive companies.
Implications of the Dispute
The dispute between Saverin and Zuckerberg has become an example of how alleged corporate misconduct and a lack of transparency can disrupt business relationships, especially within highly competitive startup environments. The outcome of the case has become an example of how trust and respect are essential when it comes to business partnerships.
The implications of the case proved to be of value in regards to educating on best practices when it comes to startup culture, as well as the future of social media aiming for transparency. It also provided a platform for conversations about the importance of open communication, fair business operations, and the risk of investing in a startup with only verbal agreements.
Similarly, Zuckerberg’s corporate governance policies served as a prototype for other businesses that may have the same probelms. He put in place terms to dilute the voting power of the stakeholders and limited external access to the boardroom. This move sparked debate about morality and ethics in the business world.
Legal Ramifications
Given the circumstances, Zuckerberg was able to succeed in strategic legal maneuverings and was able to buy out Saverin’s shares. This dramatic shift in dynamics spurred a slew of legal changes, including the addition of more transparent disclosure procedures required to avoid being in a similar situation.
The suit also drove the importance of the legal side more intensely into the considerations of early-stage investing. Many startups now rely heavily on their legal team when it comes to transactions, in order to avoid any unwanted surprises in the future.
Saverin’s case against Zuckerberg proved to be an example for the importance of contracts in Silicon Valley. From then on, agreements become an integral part of the startup process and startups are more keen to document and record agreements from the start.
Effects on Facebook
The case between Zuckerberg and Saverin had ripple effects on the functioning of Facebook in the years to come. This included both in terms of financial decisions and the company’s long-term strategy.
The dispute between Zuckerberg and Saverin had a dramatic effect on the growth of the company. It caused the company to channel more resources towards legal defense, which diverted resources away from the operational needs of the company, such as customer and user growth, product development, and marketing.
The case also served as a reminder that where there are multiple participants in a project, communication is key. As a result, Zuckerberg has since been more open with the people around him, such as other investors, mentors, and advisors.
Beyond restructuring communication within the company, the case also forced a greater level of financial transparency at Facebook. This has resulted in not only keeping track of the company’s financial deals, but also in setting up mechanisms to ensure that investors can keep each other accountable for their actions.
Mark Zuckerberg’s Reputation
Before the case, Zuckerberg had a reputation as a brilliant and ambitious Harvard dropout. He was idolized by many and proved that one could turn an idea into a billion dollar company.
However, the outcome of the case significantly damaged Zuckerberg’s public and investor relations. He was seen by many as a symbol of greed, with media outlets often portraying him as the villain of the story. In the eyes of investors, he was viewed as someone who had crossed ethical boundaries to the point where he could no longer be trusted.
Later, Zuckerberg tried to correct his image with media stories that talked about the positive effects of his actions, such as helping people stay connected, reducing inequality, and enabling knowledge sharing. He also began to open up in public interviews, in addition to speaking on issues such as voting rights and income disparity.
Though the case caused further setbacks, Zuckerberg was still able to successfully secure a firm majority of the company in the end. The circumstance has offered an object lesson in the importance of communication and the potential pitfalls associated with a lapse of transparency.
