The Real Reason Mark Zuckerberg Kicked Out his Cofounder- What The Social Network Forgot to Tell You
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While founding Facebook, Mark needed money to run the servers. Eduardo, who came from a wealthy family, agreed to fund the website with $15,000.
In a message between Mark and his friend, he said that Eduardo was rich because "apparently insider trading isn't illegal in Brazil."
Cofounder Duties 101
A few months after launching the site, it became popular among Harvard students and was already expanding to other universities. At the beginning of summer, Mark and the third co-founder, Dustin Moskovitz, moved to Palo Alto to work on Facebook while Eduardo moved to New York to start an internship.
Mark asked Eduardo to "set up the company, get funding, and make a business model." But Eduardo had other plans. He started his own startup--a job board called Jaboozle-- and even ran unauthorized ads for it on Facebook.
Mark was obviously pissed off and sent Eduardo this email:
You developed Joboozle knowing that at some point Facebook would probably want to do something with jobs. This was pretty surprising to us, because you basically made something on the side that will end up competing with Facebook and that's pretty bad by itself. But putting ads up on Facebook to advertise it, especially for free, is just mean.
To add fuel to the fire, Eduardo neglected Mark’s requests to sign the reformation of Facebook as a Delaware company.
By the end of the summer, Facebook had reached a point where it needed funding to keep growing. Investors including Ried Hoffman and Peter Theil were happy to put in the money needed, except they needed the co-founders to sign off on the reformation of Facebook as a Delaware company.
This is when Mark decided to kick Eduardo out. Check out Mark’s email to Dustin Moskovitz regarding the issue:
I maintain that he fucked himself…He was supposed to set up the company, get funding, and make a business model. He failed at all three…Now that I'm not going back to Harvard I don't need to worry about getting beaten by Brazilian thugs.
Some Nasty Business
One person had the solution to all of Mark’s problems. This man is Sean Parker. While Savarin failed in securing any funding for Facebook, Parker had already raised money for his previous startup, Napster, so he knew some venture capitalists. But, more importantly, he had the solution to Mark’s cofounder problem.
Parker decided to use some "dirty tricks" that he learned from Peter Thiel. The plan was to get rid of Eduardo by creating a new company to buy the older one. Guess who wasn't going to be part of the new company? EDUARDO SAVERIN.
In July 2004, the new company was incorporated and in October of that year, Saverin signed a shareholder agreement that gave him a 24% stake. But he failed to notice that in the same agreement, he transferred his voting rights to his dear friend, Mark.
In January 2005, Mark diluted Eduardo's stake in the company from 24% to 10% by issuing 9 million new shares and allocating them to himself, Sean Parker, and Dustin Moskovitz.
Mark knew that there would be consequences for the actions he was planning to take.
In conversation with a confidant before pulling his scheme, he wrote :
"Eduardo is refusing to co-operate at all…We basically now need to sign over our intellectual property to a new company and just take the lawsuit…I'm just going to cut him out and then settle with him. And he'll get something I'm sure, but he deserves something…He has to sign stuff for investments and he's lagging and I can't take the lag."
In the end, It all played out as he expected. After lawsuits and countersuits, Eduardo and Facebook finally settled. And he did get something. His current net worth is $20 Billion, mostly derived from his stake in Facebook. Honestly, not bad considering that his initial investment was only $15k.
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