Maybe the name of Eduardo Saverin is not so well known, however if it were remembered that it has a lot to do with the existence of Facebook, perhaps it would be a little clearer who it is. The story between Mark Zuckerberg, Saverin and Facebook has many nuances. Some of them have been clarified and others have been forgotten.
Saverin was born on March 19, 1982 in Sao Paulo (Brazil). Son of a Romanian businessman and an important psychologist. He arrived with his parents to the United States in 1992, when he was 10 years old, which allowed him to receive an education at a private school in Miami (Florida). Later, he entered the prestigious Harvard University. During his career he participated in the Phoenix SK Club and chaired the Harvard Investment Association. In 2006 he obtained a Bachelor of Arts degree in Economics.
Zuckerberg and Saverin met during their first year of study at Harvard. Their interest in the computer world quickly turned into a good friendship and with an idea between them, along with three other colleagues, Andrew McCollum, Dustin Moskovitz and Chris Hughesfounded TheFacebook.com (currently under the brand name Meta).
In its beginnings, Facebook was aimed at people who had a Harvard email address. It allowed participants to create a profile and connect with others to share interests and exchange select information about campus life.
It didn’t take long for the idea to become a business opportunity. And it is at this point where Saverin’s participation becomes relevant. He gave his friend Mark a vote of confidence by becoming one of the first investors in the project.
First, being just a student, invested US$15,000 to pay for thefacebook.com servers. Subsequently, After selling his stake in Xanga for US$20 million, Saverin invested US$2 million in Facebook. He also helped the company raise money from other investors. He convinced them that the social network would surely be successful when it gained more users than MySpace (which at that time had more than 100 million active users).
Saverin and Zuckerber: the “savings of a life” and the differences
According to Saverin, he invested the “lifetime savings” on Facebook. That money was equivalent to almost 35% of the shares (the remaining 65% belonged to Zuckerberg).
The idea was that Saverin would take care of the financing of everything that was needed and would be the Business Manager of the company. From the creation of TheFacebook in 2004 until 2005 everything went well until differences began.
Sean Parker (co-founder of Napster) saw the economic potential of the platform and wanted to get in on the game as an investor. He contacted Zuckerberg and Saverin to offer them good capital. He also suggested they make changes in the company to begin making it profitable.
Parker proposed moving the headquarters to Silicon Valley -California- as a more convenient place to grow the assets, Saverin did not agree with many of the proposals and left for New York. The objective was to find advertisers for The Facebook and be able to dedicate themselves to their own businesses.
During that separation, Sean Parker and Peter Thiel (co-founder of PayPal) came in as investors. Zuckerberg unilaterally reduced Saverin’s participation margin: first from 30% to 10%, then they would leave him with only 0.03% and without any mention as a co-founder of the company. Obviously, his participation was no longer needed at all. Unfortunately, when Saverin found out what was happening, a legal battle began.
How Zuckerberg made Saverin lose shares
The legal reason that allowed Zuckerberg to reduce Saverin’s stake in the company was the decision made by the Facebook founder to increase the number of shares, which meant that his partner would lose his percentage of the company.
This decision was legally viable, since Saverin had signed contracts with Zuckerberg that gave the latter rights to dilute that stake if new shares were issued.
The reduction in Saverin’s stake was mainly due to a legal strategy used by Zuckerberg, which was a preferred stock deal to reduce Saverin’s stake in the company.
With the preferred stock deal, Zuckerberg gave Saverin a large number of these shares (which do not give voting rights, but offer a greater share of profits). However, the agreement also stipulated that if Saverin sold his shares or if they were given to another person, then his rights would be reduced. This meant that any attempt by Saverin to sell his shares or dilute his stake would result in a reduction in his interest.
As a last resort, The preferred stock deal was a legal tool used by Zuckerberg to reduce Saverin’s stake in the company. This legal strategy allowed the former to maintain control of the company by ensuring that Saverin could not make important decisions without his consent, which was the key to being able to reduce his participation without him being able to present any legally viable objection.
Once the litigation began, among other accusations, Saverin claimed that Zuckerberg had used money that he contributed as capital for his personal use. In turn, his counterpart stated that “Eduardo was supposed to organize the company, get financing and create a business model. But he failed in all three things.”
Finally, the case was resolved. Saverin regained the right to be recognized as a co-founder of the company. In addition, he was given back part of his share up to 7%. That sum is very little compared to his initial participation but, taking into account the current value of the company, it can be said that it has been providential not to lose everything.
Apart from the financial agreement, Eduardo Saverín had to sign a confidentiality contract. In addition, he has committed not to sue Facebook again in the future.
Source: Ambito
