Why Facebook went west

[David Farber <dave () farber net>]

Begin forwarded message:

From: Monty Solomon <monty () roscom com>
Date: September 14, 2007 10:43:08 PM EDT
To: undisclosed-recipient:;
Subject: Why Facebook went west


Innovation Economy

Why Facebook went west

Turned down by a local venture capitalist, two Harvard students look
to Silicon Valley for funding instead. The result: Boston misses out
on an online phenomenon worth up to $6 billion.

By Scott Kirsner  |  September 9, 2007

In April of 2004, two Harvard undergrads walked into the Charles
Hotel for a meeting with a venture capitalist. What happened next
either highlights Boston's deficiencies as a greenhouse for a new
generation of Web start-ups, or illustrates the incredible magnetism
of Silicon Valley - or a bit of both.

The Harvard students were Mark Zuckerberg and Eduardo Saverin, and
they were at the Charles to talk with a senior associate at Battery
Ventures of Waltham. It was the senior associate's job to spot
interesting companies for the partners at his firm to consider as
investments. (The firm where this person now works allowed him to be
interviewed only under the condition that he not be named.)

He'd heard about the website that Zuckerberg and Saverin and a few
other students had built because he himself was a Harvard alum, and a
few days earlier, he'd run into some current students who had told
him about it. It was called Facebook, and at the time it only had
1,000 or 2,000 users.

Zuckerberg told the senior associate that he was planning to go to
California for the summer, and he wasn't sure whether he would return
to Harvard for his junior year. Summer was less than two months away.
The senior associate was pretty sure that if Battery Ventures didn't
invest before then, a Silicon Valley venture firm would discover the
deal. For venture capital firms, getting in first can often mean
getting a bigger chunk of a start-up for less money - especially if
the start-up isn't talking to other firms. And Facebook wasn't.

After a second meeting at the Charles, and a visit to Battery's
offices above the reservoir in Waltham, Zuckerberg said he thought
Facebook was worth about $15 million, and was willing to accept an
investment ranging from $1 million to $3 million, which would have
given Battery a substantial chunk of the start-up.

But Battery had already made an investment in an earlier social
networking site, Friendster, which was foundering. Zuckerberg struck
some partners at the firm as a little too brash. And no one was sure
whether Facebook would appeal to anyone oth er than college students,
its target.

There were also turf issues with Battery's Silicon Valley office,
which had invested in Friendster. "There was a question about whether
we on the East Coast side were going to lead an investment with a
sophomore in college who was considering a move to the West," says
the senior associate.

The firm passed - even though Scott Tobin, the Battery partner who
evaluated the opportunity, could have invested a few hundred thousand
in Facebook without putting the deal to a vote of all the partners.
(Tobin had earlier invested in Akamai Technologies Inc., now a member
of the S&P 500 index.)

Zuckerberg, who grew up in Westchester County in New York and
attended Phillips Exeter, went to California in June 2004 with two of
his Facebook cofounders.

Through a chance connection, Zuckerberg was introduced to Peter
Thiel, a cofounder of the online payment system PayPal, who was
running a hedge fund called Clarium Capital. He met with Thiel in
August, at Thiel's office in downtown San Francisco.

Thiel had also been an investor in Friendster, and he knew that the
conventional wisdom was that all the social networking sites "were
just fads that would come and go," he says. Thiel listened to
Zuckerberg's pitch in the morning, asked him to go out and grab
lunch, and by the time Zuckerberg returned in the afternoon, "we said
we'd invest, and we agreed to the basic valuation parameters," Thiel
says.

"It seemed like a good company," he said, adding, "Most of the time,
we're not that fast."

Thiel put in $500,000 of his own money in return for 10 percent of
the company.

...

http://www.boston.com/business/technology/articles/2007/09/09/ 
why_facebook_went_west/



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