Weekly news and teardowns on trending startup companies
The most relevant Twitter threads of the week
Product of the week brought to you by ProductHunt
Detailed stats on the companies that raised venture capital
In the film, Eduardo Saverin might come off as the saint in The Social Network. He's the victim. Zuckerberg stabbed Saverin in the back, diluted his stock, and left him with nothing, except this might not be true. So, who is he? And, most importantly, how much did Eduardo Saverin get from Facebook? It's essential to separate what's fact and fiction in the movie that made him a household name in the tech world, plus there are other questions.
In October 2003, a drunk Mark Zuckerberg created a website called Facesmash out of anger and spite after his girlfriend dumped him. The site's premise was simple; it was a "hot or not" website where users could rate student profile pictures from nine different Harvard houses.
The idea quickly gained popularity, and within just four hours, it had already received 22,000 clicks. The site crashed Harvard's servers within a few days, and Zuckerberg faced expulsion and legal consequences. Granted, while the film portrays the server crashing in hours, which didn't happen, the feat is still impressive.
Despite the blunder, Zuckerberg's friend Eduardo Saverin continued to support him. The idea of a universal face book lingered. In 2003, Harvard University began using face books to gather basic information from students, from their photos to their names, genders, and places of birth. Eventually, the university hoped to have a universal face book for all its houses.
Zuckerberg, however, mocked the university's "prehistoric thinking" and decided to take matters into his own hands. Within just a few days or possibly weeks, Zuckerberg had developed the code for a universal facebook, but he needed financial backing. And that's where his friend comes in as Saverin had a lot of money.
Saverin was instrumental in guiding Zuckerberg on the financial and marketing, or, at least, that's what the movie tells us. Both founders invested $1,000, and on January 8, 2004, an IM conversation between Zuckerberg and a friend revealed that Saverin was putting in more money, which would be vital for the launch of The Facebook.
With Saverin's money, Zuckerberg and Saverin agreed to create Facebook, with Zuckerberg owning two-thirds of the company and the rest belonging to Saverin. However, before this, Facebook was deep in a legal battle.
Tyler and Cameron Winklevoss were jocks with a brain. They, along with Divya Narendra (not a jock, but with a brain), created HarvardConnect. The idea was a basic social network for Harvard; they needed someone to help them build it. That's where Mark Zuckerberg comes in.
The three asked Zuckerberg to help them develop the site, and both parties agreed. However, after the initial conversation on November 25, Zuckerberg began playing the delay game, claiming that the project had been delayed. At this moment in the movie, it's perceived that he's working on Facebook instead of HarvardConnect.
The emails became evidence in real-life legal proceedings. Zuckerberg's side didn't question them at the time of the first trial. If there was any doubt regarding his actions, further evidence surfaced that he had stalled his work on HarvardConnect.
After a legal back and forth, the Winklevoss twins settled for an undisclosed amount. The fascinating thing is that this wouldn't be the last legal iteration around Facebook and HarvardConnection (eventually renamed ConnectU) or any of the parties involved. Instead, it was a legal battle that would take more than seven years, even in the Supreme Court, only to end in discreet settlements.
.png)
Meanwhile, in all this back and forth, one man stood by Mark Zuckerberg: Eduardo Saverin, but where does this character come from?
Brazilian-born Eduardo Saverin has always been open about the past. At least, he welcomes journalists to his office in Singapore and is open to discussing Facebook. Unfortunately, however, there isn't much he can say.
In the moments he has opened up about Facebook, Saverin is elusive and focuses mainly on what the movie got wrong instead of the ins and outs of what really happened. Perhaps, it's all part of a strategy to put the past behind him.
There's no denying that the movie got one thing right. Eduardo Saverin is brilliant, and there's not much it says about the past. Saverin was born in Brazil into a wealthy family. His father, Roberto Saverin, had amassed in fortune in retail, real estate, and logistics. The Saverin family was so rich that, by age 13, the young Eduardo was on a list for potential kidnappings, so he was heavily guarded.
Though reality and fiction blur in this story, several articles also highlight that he moved to the US because his father had always wanted the American dream for his kids. There's also evidence that Eduardo was a brilliant negotiator, especially when they moved out of Brazil.
Before leaving for the US, a preteen Saverin sold his videogame to a friend, but not before telling his father he would only travel to the US if Roberto bought him a new one. Thus, as soon as they landed, Roberto Saverin got him a micro Packard Bell. From his teenage years to Harvard, there's little evidence of what happened with his life. Still, once he arrived at Harvard, his reputation was quickly solidified.
Eduardo Saverin created software to predict hurricane patterns, and he earned a pretty penny in oil stocks. At the time of this article, Bloomberg rated him at a valuation of around $7,8 billion. He cofounded B Capital Group, a fund that has raised over $2 billion and invested in 178 companies.
There's another true myth. Saverin wore a suit and tie to class and hit it off with Mark Zuckerberg, eventually becoming what the movie calls best friends. Even after all these years, Saverin has never shied away from what he thinks of Zuckerberg, even comparing him to Bill Gates. So, his reputation was quite solid.
Saverin was a valuable contact for Zuckerberg, not only for the money but for his connections and an understanding of the business world. So, he lured Saverin in with approximately two-thirds of the company. Each could invest $1,000, according to Rolling Stone magazine. Still, in one of the lawsuits, Saverin stated that they agreed to contribute $20K in cash and that Zuckerberg never did this. Other evidence also suggests that Saverin covered much of the server costs, and money would be the central issue in their relationship.
On February 4, 2004, the most basic iteration of the world's biggest social network was born. Within two weeks, it already had 4,000 members. Knowing they needed more help, Dustin Moskovitz, Chris Hughes, and Adam D'Angelo stepped in, with Moskovitz taking a 5% ownership stake. So the company was set as Mark with 65%, 30% for Eduardo, and 5% for Dustin.
.png)
However, as soon as The Facebook launched, problems arose, causing the two best friends to separate eventually. In the summer of 2004, Moskovitz and Zuckerberg moved to Palo Alto, California, while Saverin interned at Lehmann Brothers. Still, he had some tasks, which included setting up the company, getting funding, and writing a business model. The company filed for incorporation on April 13 of that year, with Zuckerberg soon to become the lead nerd set to take over the world. Meanwhile, the friendship took a toll as the coast-to-coast dynamic wasn't working.
Another important figure, Sean Parker, witnessed the entire story unfold. Parker had cofounded Napster and, though the film exaggerates his cocky personality, had earned quite a reputation as a bad guy in tech. Plus, he was very interested in the company. In the power struggle between Parker and Saverin, the latter would end up paying the price, though it didn't seem like it at the time.
Facebook was going well. According to the movie, Peter Thiel had given the company $500,000 in funding, and Mark Zuckerberg faced a dilemma. His CFO, the one person with a vital role, was on the other side of the country, seemingly disinterested in Facebook. Business Insider found evidence that Zuckerberg was trying to lure him into California with frequent flyer miles.
Unresponsive, Saverin suddenly became 30% of dead equity, and Zuckerberg needed to change this. So, he, Parker, and Moskovitz plotted how to take Saverin out of the equation. The strategy was to reduce Saverin's share to practically nothing. Hence, Zuckerberg began to dilute Saverin's shares, essentially taking control of the company and leaving Saverin with practically nothing.
Business Insider shows that Zuckerberg had been plotting with several people to eliminate Saverin's chances of affecting Facebook. As an LLC, the original company was formed in Florida, so Zuckerberg created a C-Corp in Delaware that would absorb the company in Florida.
To go ahead with this deal, the LLC needed to agree to it, which would require the signature of all those involved, including Eduardo Saverin. That's why, from a business standpoint, LLCs aren't ideal for companies going through multiple funding rounds, as each round requires rewriting all agreements.
Instead, a C-Corp works by a share distribution, such as the one Zuckerberg formed in Delaware. Shareholders in a C-Corp do not transfer or sell them. Instead, if a new investor comes along, the company issues more shares for the newcomers. Everyone keeps the same number of shares, but with the new ones, all represent a smaller percentage, with a percentage like this, in the case of Facebook.
.png)
The restructuring didn't sit well with Saverin, and he became suspicious. So, he froze the bank account in Florida, which was essential for any future business. This move proved troublesome for Zuckerberg, whose family had to pay $85,000 to keep the company alive until Peter Thiel's money came in. It also angered Zuckerberg, fueling his desire to speed up the process.
Zuckerberg went fully into convincing Saverin to renounce the voting rights of his shares, delegating them to Zuckerberg, which happened on October 31, 2004. Saverin signed an agreement leaving him with three million shares in the new company but without the shares from the old one. He also gave up his voting rights, effectively ceding control to Zuckerberg. As a result, stock dilution occurred on January 7, 2005, when Zuckerberg issued more than 9 million more shares in the new company.
These shares were compensation to active employees in the company, which Saverin wasn't, in exchange for staying longer. It is a Stock Option Pool, typical in the startup world. Since Saverin had given up his voting rights and stopped being an employee, these didn't benefit him. Instead, Sean Parker and Dustin Moskovitz earned more shares.
Then, by April 2005, the company closed another round of funding, $12.7M on a $98M valuation, led by Accel Partners. The company was issuing new shares, again diluting everyone, and that's where Eduardo noticed the change. He'd been robbed. The movie portrays this as a climactic scene, where Andrew Garfield is heartbroken about the betrayal, only that it was never 0.3%. Saverin's shares went from 30% to 10% before the IPO.
After realizing this, Saverin went on the offensive. First, he contacted the Winklevoss twins and Narendra, all to sue his former best friend. Then, he reached author Ben Mezrich, who wrote the book, which worked as a basis for The Social Network.
Eventually, the two sides would settle, and Zuckerberg would even reinstate Saverin in the annals of Facebook history as a co-founder. Plus, there’s one side we haven’t mentioned and that is Facebook’s IPO. Riding high on being the biggest social network in the world, when Facebook went public, it was a major hit, even if this meant that Saverin’s stock would dilute even more. So, what was Eduardo Saverin's net worth?
Even with his diluted shares, according to Bloomberg, Saverin's net market value was still $7.8 billion due to the company's growth. Of course, it could've been more, but it's a lot for $18,000 of initial money.
One movie tells how Saverin helped Facebook get off the ground. As loft-sided as it is, it's the only story we get to see. Not even the court documents are there for public view, but there's no denying Saverin had been there from the beginning, helping to create the basic equation for Zuckerberg's most crucial venture: creating the world's most important social network.
Nowadays, Eduardo Saverin isn't a household name, which is surprising, given that he helped found the world's biggest social network. At least, that's what the movie tells us. The Social Network has a 96% rating on Rotten Tomatoes, won three Oscars, two Baftas, and one AFI, and received countless nominations. It's a genius film that tells us how Facebook was born.
