This came as an email to me. It is a quote from the well known Michael Masterson the founder of that great daily email Early To Rise.
This is from his newsletter on how he felt about the movie.What follows is his critque.
From others I gather that his opinion is not alone on the ethics of the Facebook founder.
This is from his newsletter on how he felt about the movie.What follows is his critque.
From others I gather that his opinion is not alone on the ethics of the Facebook founder.
Code:
"Quote
I recommend you take the time and go and see The Social Network in a theatre as you will not only get the experience of the movie but you will feel the reaction of the younger people in the audience who think it is "so cool."
Let me know what you think.
"I finally got around to seeing Social Network, the surprise hit movie about the founding of Facebook.
The movie depicts the founder, Mark Zuckerberg, as an unethical opportunist who stole the original idea from three fellow students -- and then, after the business was successful, screwed Eduardo Saverin, his best friend, out of Eduardo's share of the business.
The first breach of ethics is debatable. Zuckerberg was hired by his three fellow students to work on a business they were developing -- an Internet dating site restricted to Harvard students. They explained to Zuckerberg that they believed the exclusivity of Harvard would give the service panache.
Zuckerberg agreed to work for them but didn't. Instead, he furtively developed a similar website using their core concept of exclusivity but not using any of their programming or other intellectual property. After the three students discovered what Zuckerberg had done, they tried to stop him but were unable to get him to desist. Finally, they sued him and won $64 million.
Zuckerberg settled the case not because it was clear that he had broken any laws but because his attorneys no doubt persuaded him that though he was technically clean a jury might think what he had done was wrong.
But what he did to Eduardo Saverin, his best friend, was indisputably unconscionable.
Eduardo was there with Mark from the moment Mark came back with his half-stolen idea. He gave him ideas and moral support. He also financed the business, for which he and Mark agreed he'd get a 30% stake.
As the business grew, the two had disagreements about whether they should take advertising (Zuckerberg didn't want to) and later about whether they should take on Sean Parker, the co-founder of Napster, as a partner. (Zuckerberg wanted to; Saverin didn't.)
Zuckerberg's view held sway, but the disagreement over Parker continued to be a source of irritation. The relationship really started to break down when Zuckerberg and Parker moved the operation from Harvard to Southern California and began to run the business like a bordello.
Saverin didn't like Parker's influence on Zuckerberg, and he didn't trust him to contribute to the business. At one point, he froze the company's bank account to try to bring Zuckerberg to his senses.
Zuckerberg was infuriated, but the two friends resolved the situation and agreed to work together. Meanwhile, Parker secured half a million dollars in seed capital, which allowed them to rent a large office and hire some employees. The business was growing now at a rapid pace. Before long, they had a million members, then five million, then 10 million.
At one point, Zuckerberg and Parker had Saverin sign some "routine" papers that turned out to be documents that degraded Saverin's shares. The net result was that, at the next funding, Saverin's shares were diluted by 99% while none of the others were affected.
Zuckerberg had essentially stolen his friend's equity.
I don't know for sure what the real story is, but it wouldn't surprise me to learn that it was not much different from the movie. If so, these are my thoughts:
- Money changes small people and big money changes small people in a big way.
- Businesses are sometimes complicated and complications create changes in duties and responsibilities.
- Normally, these changes can be dealt with by making compensatory adjustments. If one partner is working more than another, you can pay him more. If one partner decides he doesn't want to work at all, you can dock his compensation.
- But the one thing you can never adjust unilaterally is equity. Equity -- the stake each partner has in the business when the business is established -- is sacred.
What Zuckerberg did in "stealing" the core business idea is one thing. But what he did to Saverin is egregious. He connived to steal his friend's equity.
If a person is willing to unilaterally change the equity situation in a partnership, he is capable of anything.
Here are the takeaways...
Before you do business with anyone, make sure they understand the sacredness of equity. If they don't -- if they think that equity is dependent on anything other than ownership -- don't make a deal with them.
Before you make a deal, think carefully about the equity distribution. Understand that during the course of the business's life things will change, sometimes dramatically. And the contributions that are made in the beginning will change too. Some partners will become less valuable and some will become more. But the equity distributed in the beginning cannot be dependent on those contributions.
When you have a partner who isn't living up to your idea of his end of the bargain, you are free to try to buy out his share of the business, but he does not have to let you do it. You are also free to negotiate his salary if he is drawing a salary from the business.
But the one thing you can't do -- that you can never do -- is adjust his equity downward. You can only buy his share of the business at face value. Once equity interest is vested, it is not dependent on performance. It represents a feeling the partners had about what was fair and equitable at a certain moment in time. And that is that."
