Why Did Mark Zuckerberg Dilute Eduardo Saverin’s Stake in Facebook?
Mark Zuckerberg, founder of the world’s most popular social media platform, Facebook, was, like most successful entrepreneurs, once part of a team. Educardo Carlos Saverin was his co-founder and invested $30,000 as a start-up capital for the company. Facebook quickly grew in popularity and raised more money from a number of investors, eventually leading to the company going public in 2012. Saverin’s stake in the company drastically decreased between 2004 and 2012, however. What happened between these dates and why did Mark Zuckerberg, who had previously been in this two-man venture, dilute his co-founder’s stake?
When Facebook started, Saverin held a stake of 30%. After many new investments the stake dropped to 24%. As part of the Facebook acquisition by Accel Ventures in 2005-06, Saverin’s stake was yet again reduced to 18%. Zuckerberg then redeemed 40 million shares from Saverin for $47 million, leaving the latter with a 5% to 6% share in the company. Finally, Saverin’s stake decreased to approximately 0.4% when Facebook went public in 2012.
Experts suggest that the main reason behind the dilution of Saverin’s stake in the company is that he and Zuckerberg had very different opinions on how Facebook should be run. They argued over finance and management of the company—so much so, that Saverin eventually moved to Singapore and resigned from his executive positions in the company. Some speculate that Zuckerberg set up a voting agreement to acquire Saverin’s shares when Saverin had alienated himself from the company.
Regardless of the reason, Zuckerberg was clear in his mission to see Facebook succeed. Harvard professor, Dr. Lawrence E. Ohio, says that Zuckerberg wanted to bring in “strategic investors” and corporate executives who would bring together the company’s ultimate goal to “connect people”. Saverin disagreed with their involvement leading to multiple disagreements, thus resulting in the dilution of his stake.
In regards to the legality of the actions taken against Saverin, many experts agree that the measures taken by Zuckerberg and other corporate leaders in Facebook were justified. Professor Ohio suggests that Saverin’s behavior did cause instability in the company and his absences from multiple board meetings could be interpreted as an expression of no longer being interested in the company.
Saverin was then served legal papers as it was believed he was attempting to sell his shares and wanted to “cash out” of Facebook without paying back what he owed the company. While this was never confirmed, many experts suggest if Zuckerberg and corporate leaders did not take prompt action they could have faced serious legal troubles instead.
Negotiation Tactics of Zuckerberg
Mark Zuckerberg is well known for his negotiating prowess. Experts suggest that by diluting Saverin’s stake in the company, he was able to regain complete control of the company thus preventing him from parting with his shares in the company according to his wishes. By redeeming Saverin’s shares in two separate transactions with two different companies, he was also able to establish a stronger legal footing.
It is also suggested that Zuckerberg was working towards building a strong and reliable team. For instance, his trusted advisor, Elliott Schrage, played a pivotal role in the negotiations. Schrage’s negotiations led to the settlement between Facebook and Accel Studios. Through this settlement, Saverin was able to avoid any possibly legal action.
At the end of the day, Mark Zuckerberg’s robust negotiating tactics allowed him to retain complete control over the company. He was able to dilute Saverin’s shares in order to not just protect the company from a possible financial blow, but also from any legal charges he might have been faced with.
Perception of Saverin
The perception of Saverin has changed drastically over the years. While some people have a more sympathetic approach to the whole situation and consider him to be a naive co-founder who got kicked out of his own company, others regard him as a calculating investor who was afraid to take risks. Many suggest that Saverin could have retained his stake in the company, but his legal strategy and lack of interest led to his fall.
Others argue that Saverin played a pivotal role in the company’s success and Mark Zuckerberg’s later success. They argue that without his early financial contributions, Facebook would have probably not succeeded. They argue that his “right of first refusal”, which allowed him to maintain majority control of his shares, was “trampled on” when Zuckerberg redeemed his shares and diluting his stake.
In the end, the world may never know the true reason why Mark Zuckerberg decided to dilute Eduardo Saverin’s stake in the company, but regardless of the cause, the consequences of his actions have certainly made the headlines. And, the tension between the two men have been speculated by multiple news outlets.
Conflict Between the two Men
The conflict between Mark Zuckerberg and his co-founder and former friend, Eduardo Saverin, has been a major topic of discussion since the release of the 2010 movie, The Social Network. The movie, based on the fictitious book The Accidental Billionaires, has been popular amongst many circles and is a major source of information for both the parties.
The bright future of the company was put at risk due to this conflict. And, when Zuckerberg’s hard and swift measures to dilute Saverin’s stake in the company were made, many felt that this was unethical and a sign of bad faith. Some have pointed out that Zuckerberg’s actions were not on the legal side and it was his ambition to gain all the control of the company that led to the reduction of Saverin’s stake.
Experts suggest that Zuckerberg’s move was part of a broader strategy to make sure that the company was on the right track. His decision to dilute Saverin’s stake was to make sure that it was only he and his team who could run the company. His decision ensured that those who differed or disagreed with him or the team’s vision were out of the equation before it was too late.
Aftermath of the Dilution of Saverin’s Stake
The dilution of Saverin’s stake in the company has had an everlasting impact on the business world. While the resolution ultimately agreed upon varied from what either party had originally imagined, it created a precedent for founders and co-founders of a startup to follow. The story of Facebook and the actions taken by both parties has become a point of reference in the business startup world and has set the benchmark of how founders should handle such situations.
The diluted stake of Saverin has also made people more aware of the importance of the legal procedures when setting up a company. They have learnt that a poorly handled agreement between two people can bring long-term repercussions with it. This story has also been a great example of how a large legal team can help protect investors, even when there are disagreements between founders.
Overall, this story has reached far and wide and has left a lasting impression of what it takes to protect the value and interest of a business or a startup before it is too late. It is the perfect example of how equally important co-founders can be to the growth and progress of the company, yet it also serves as an example of how tough decisions have to be taken even when it comes to a close friend or ally.
The Role of Media in Coverage of Saverin’s Dilution
The media has had a substantial influence on the coverage and reportage of the reduction of Saverin’s stake in the company. Media reports have often been heavily biased towards either Zuckerberg or Saverin in order to build up a favoured one-sided narrative. The coverage by the media not only focused on the details about the conflict between the two men but also primarily focused on sensationalising their story to the masses.
The 2010 movie adaptation of The Accidental Billionaires, The Social Network, also heavily contributed to the sensationalising of the story. It received widespread reception, however, many experts criticised the movie for being overly dramatic and misrepresenting the facts of the event. While it did provide insight into the life of Mark Zuckerberg and the rise of the company, it mainly focused on dramatising the story in order to make it more attractive to the viewers.
The story of Mark Zuckerberg and the dilution of Saverin’s stake in the company has been and will continue to be a major topic of discussion in the business world. The story has provided great insight into the struggles of a startup and the need for an investor to safeguard their interests.
Twitter Echoes the Events
It’s hard to think of a situation where Twitter does not become a platform for discussing contemporary events, especially one as remarkable as Saverin’s dilution. Twitter served as a platform for discourse of the event as soon as it happened, from both sides of the coin. Following the release of The Social Network, multiple posts on both sides sparked a heated debate. Even though the entire incident happened almost 10 years ago, the debate still rages on to this day.
Twitter is also used as a platform to showcase individual’s morals and convictions. Some users praised Zuckerberg as he had taken a difficult decision of diluting Saverin’s stake himself rather than relying on corporate pressures. Other users, criticized Zuckerberg for taking advantage of a former ally. This, however, was an expected reaction as a lot of people who post on such topics have bias of their own.
In addition, Twitter has also become a medium for opinion sharing and highlighting the rights of initiators in a startup― something especially important in the age of tech since the growth and spread of tech not only has had an impact on the economy and job market, but has also created countless new opportunities for entrepreneurs.
