Imagine you and a friend founding a revolutionary company together. A few years later, the company goes public – and is suddenly worth over 100 billion dollars. But what happens when your paths diverge, trust is shaken, and courts have to clarify ownership? That is exactly the true story of Facebook and its two founders, Mark Zuckerberg and Eduardo Saverin.
From co-founder to billion-dollar “severance recipient”
Eduardo Saverin was not only a co-founder of Facebook, but also its most important financier at the beginning. With his private capital, he made it possible for Zuckerberg and the small team to make their first leap out of the dorm room. For this, Saverin received around 34 percent of the company’s shares in 2004 – a considerable share of what was soon to become the largest social network in the world.
But as often happens with rapidly growing startups, power structures and roles shifted. Saverin was increasingly pushed to the sidelines, his shares were massively diluted through new financing rounds – until ultimately almost nothing was left for him. He went to court and eventually reached an out-of-court settlement with Facebook.
The result: Saverin received a hefty compensation and was officially recognized as a co-founder of Facebook. His stock package was estimated – according to the estimates at the time – at 2 to 4 billion US dollars at the IPO in 2012. A fortune most people can only dream of.
The big calculation: What could have been
Anyone who now thinks that Saverin was more than royally compensated anyway should take a closer look at the numbers: If Saverin’s original 34 percent stake had been preserved until the stock market listing, it would have amounted to an incredible 35 billion dollars at Facebook’s IPO valuation of around 104 billion dollars. In plain terms: The severance payment corresponded to only a fraction of the theoretically possible profit – less than a tenth.
Zuckerberg’s smart deal
For Mark Zuckerberg, the settlement with Saverin, however expensive it may seem at first glance, was an almost cheap price for complete control over the company. The billion-dollar severance secured Facebook and Zuckerberg the freedom to run the company according to their own ideas – without legal baggage or external interference.
Conclusion: In the tech business, it’s all about proportions
The case impressively shows: In the world of tech giants, even billion-dollar deals are sometimes a bargain – at least compared to what was at stake. Mark Zuckerberg was able to free Facebook from all of Saverin’s rights of co-determination and lay the foundation for his now unchallenged influence over the company. And so the story of Saverin’s severance remains an impressive lesson in how calculations are made in Silicon Valley – and how even a billion-dollar amount can sometimes become the best deal of the decade.
