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To: Glenn Petersen who wrote (272)5/12/2012 3:03:12 PM
   of 2967
Facebook's IPO already oversubscribed: source

SAN FRANCISCO | Fri May 11, 2012 8:53am EDT

SAN FRANCISCO (Reuters) - Facebook Inc's record initial public offering is already oversubscribed, a source familiar with the share listing said, days after the world's largest social network embarked on a cross-country roadshow to drum up investor enthusiasm.

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To: TopCat who wrote (332)5/12/2012 3:17:32 PM
From: Pogeu Mahone
2 Recommendations   of 2967
I apologize.

Most people I know started poor with an idea
and lot of elbow grease.
Basements , garages, cheap industrial space
is the progression. I met a lot of poor people with big brains who were
socially inept at asking for money. I was poor but have a big mouth so
it was easy for me to sell their vision.

At our darkest hour 5 of us were getting thrown out of our
apartments for being in arrears . Some lawyer from Xerox
stumbled upon us and they bought us.
I bought the building I was being thrown out of;0)

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To: Lahcim Leinad who wrote (333)5/12/2012 7:25:59 PM
From: Glenn Petersen
2 Recommendations   of 2967
Thank you for your decision. For a bit of tax savings on a fortune that he did not fully earn, Saverin has forever defined himself as an ungrateful whore. That would not work for me.

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To: Glenn Petersen who wrote (336)5/12/2012 8:46:54 PM
From: Lahcim Leinad
1 Recommendation   of 2967
There are very few attributes that are our very own. They define us. Honor, dignity and responsibility all come to mind. I'd hate to piss all over mine, like he did.

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From: Glenn Petersen5/13/2012 12:14:48 AM
   of 2967
The Education of Mark Zuckerberg

New York Times
Published: May 12, 2012

Minh Uong/The New York Times

For Mark Zuckerberg, Facebook's public offering is a turning point. It is the deal that will either prove once and for all that the company is changing just about everything, or that the mania over social media is spiraling out of control.

His audience this Monday morning, a Who’s Who of Wall Street heavy-hitters, with untold billions to command, shifts in its seats. Papers rustle. BlackBerrys buzz. Cue Mr. Zuckerberg and — Wait: where the heck is Zuck?

Mr. Zuckerberg, the hoodied man-child of Facebook, is stuck in the men’s room. Apparently, the suits can wait.

Up on the stage, Sheryl K. Sandberg, Mr. Zuckerberg’s No. 2 and the polished, corporate yin to his nerdy, coder yang, vamps a little: You know Zuck, she shrugs. And the money types laugh: yes, we know Zuck.

It’s May 7, a week before Mr. Zuckerberg’s 28th birthday. And, as Wall Street, Silicon Valley and the wider world all know, something big is coming. It is the deal that will either prove once and for all that Facebook is changing just about everything, everywhere, or that the mania over social media and this company, its apotheosis, is spiraling out of control.

Inside a ballroom at the Sheraton New York in Midtown Manhattan, Facebook’s executives, spinmeisters and bankers are choreographing its initial public stock offering. This is no mere I.P.O. It feels like a cultural event, a pinnacle in the history of tech, a moment. The deep pockets have arrived at the Sheraton for a multibillion-dollar sales pitch. If all goes well, Facebook will go public on Friday in an I.P.O. that could value it at nearly $100 billion.

One hundred billion dollars — for a company that, eight years ago, didn’t even exist.

No one has more riding on this than Mark Elliot Zuckerberg, hero-villain of “The Social Network,” destroyer of worlds, devourer of time and, for better and worse, the latest in a line of revolutionaries stretching back to Gutenberg who have upended the way we communicate and think.

The outlines of the Zuckerberg story thus far — the boyhood in Dobbs Ferry, N.Y., the Harvard wars over “thefacebook,” the relentless rise in Silicon Valley — are by now well known. But Facebook’s I.P.O. will begin a new chapter — indeed, a new volume — in one of the great business narratives of our time. It will also make Mr. Zuckerberg almost impossibly rich. In an instant, his stake could be worth upward of $18.7 billion.

Mind-boggling figures aside, the question on many minds is this: Is Mr. Zuckerberg really ready for this? Is he — there’s no sugarcoating it — grown up enough to lead a public corporation that is more valuable than McDonald’s or Goldman Sachs? The answer to those questions will determine the future of Facebook, as well as the fortunes of its new, public shareholders. For the first time, Mr. Zuckerberg will be judged, in real time, by a relentless stock market. And that market, as C.E.O.’s everywhere know, is merciless.

“You’re making a bet, and the bet is always on ‘Can the founder go somewhere?’ ” Reid Hoffman, a co-founder of LinkedIn, an adviser to Mr. Zuckerberg and an early financial backer of Facebook, said in an earlier interview. “And Zuck’s done great.”

It’s hard to argue. The question, however, is where Mr. Zuckerberg goes from here as a chief executive. He declined to be interviewed for this article, but interviews with dozens of venture capitalists and entrepreneurs in Silicon Valley, as well as with Facebook colleagues and outsiders who have mentored him along his climb, paint a promising picture. Beneath that hoodie, these people say, is an increasingly assured leader, one tempered by failures — and there have been some big ones — as well as astonishing successes.

Friends and colleagues agree that Mr. Zuckerberg’s goal is be a C.E.O. for the long haul. Like a software engineer writing a program, he has tried to fill in the gaps in his personal code, and to ensure, as a programmer might put it, that his code doesn’t break.

Even now, with a multibillion-dollar brass ring at hand, Mr. Zuckerberg remains intensely aware of his limitations, these people say. Where he is strong — in product design and strategy — he tends to micromanage. Where he is weak — day-to-day management, operations — he hires people with a defter touch. He has enlisted top engineers and managers, including the formidable Ms. Sandberg, 42. Friends and colleagues say she has coached the often-awkward Mr. Zuckerberg on how to interact with employees and to build Facebook’s business.

But Mr. Zuckerberg has also invested in a personal brain trust beyond Facebook’s headquarters in Menlo Park, Calif. He cultivated as advisers such tech giants as Bill Gates and Steve Jobs, as well as others as varied as Marc Andreessen, the co-founder of Netscape, and Donald E. Graham, the chairman and chief executive of the Washington Post Company.

One venture capitalist tells how, when he met Mr. Zuckerberg in 2005, the young man wanted more than the V.C.’s money. He wanted an introduction to Mr. Gates. (He eventually got one, on his own. Today, Mr. Gates regularly advises him on philanthropy and management issues.)

“What’s most interesting about Mark is how he developed himself as a leader,” says Marc Benioff, the chief executive of Salesforce, who has known Mr. Zuckerberg for years. “Not only did he have an incredible vision for the industry, but he had an incredible vision for himself.”

Granted, Mr. Zuckerberg can still come across as a bit of a social misfit, particularly on buttoned-down Wall Street. Last Monday at the Sheraton, for instance, some took issue with his dorm-room wear, considering it a snub to the financial industry.

“Mark and his signature hoodie: He’s actually showing investors he doesn’t care that much,” Michael Pachter, an analyst for Wedbush Securities, told Bloomberg TV. “He’s going to be him and he’s going to do what he’s always done.” Mr. Pachter added: “I think that’s a mark of immaturity. I think that he has to realize he’s bringing investors in as a new constituency right now, and I think he’s got to show them the respect that they deserve because he’s asking them for their money.”

Yet there’s no denying that those on Wall Street, as well as Facebook’s 901 million monthly users worldwide, have grown accustomed to Mr. Zuckerberg, quirks and all. Sure, techno-gods like Mr. Jobs and Mr. Gates long ago challenged the old stereotypes of how C.E.O.’s should look, sound and act. But when Mr. Zuckerberg burst onto the scene, Facebook’s success pushed the boundaries even further.

“He is a sponge in terms of learning. He has a higher ask-to-talk ratio than anyone I know,” says one of Mr. Zuckerberg’s friends, who, like many people interviewed for this article, spoke on the condition of anonymity, given the imminent I.P.O. “He is constantly asking ‘Why? Why? Why?’ and he has a very clear sense of what he is good at and somewhere between average and mediocre at.”

MUCH has been written in recent years about the death of the “imperial C.E.O.,” the executive who leads from a glorious distance, screaming orders at underlings.

To look at him, Mark Zuckerberg might seem just the opposite. But most people who know him say he harbors more than a hint of C.E.O. imperialism. Joe Green, his roommate at Harvard, says that, particularly in the early days, Mr. Zuckerberg was so confident that he often came across as aloof. He wasn’t the best communicator, Mr. Green says.

“You can see that as a bad thing, but you have to have an irrational level of self-confidence to start something like Facebook,” says Mr. Green, now a co-founder of Causes, a popular Facebook application.

Perhaps it is no surprise, then, that Mr. Zuckerberg is fascinated by ancient Greece and Rome. As a boy, a favorite video game was Civilization, the object of which is to “build an empire to stand the test of time.”

Civilization, one friend says, was “training wheels for starting Facebook.”

But, in 2006, Mr. Zuckerberg almost lost his grip on the company, in an episode he has since come to view one of his biggest failures as a C.E.O.

At the time, the Yahoo executive Daniel L. Rosensweig was doggedly courting Facebook, hoping for Yahoo to buy it. Mr. Zuckerberg’s price, $1 billion, was roughly 1/100 of what Facebook is expected to be valued at in its I.P.O. this week.

Mr. Zuckerberg and Mr. Rosensweig, who is now C.E.O. of Chegg, informally sealed the deal with a handshake. Then Yahoo’s share price tumbled abruptly on the stock market, and Yahoo reduced its offer to $850 million.

Relieved, Mr. Zuckerberg walked away — and vowed that he would never make the same mistake again. “If you don’t want to sell your company, don’t get into a process where you’re talking to people about selling your company,” Mr. Zuckerberg said at a start-up conference at Stanford University last October. He resolved to retain control of Facebook. And he then pushed out colleagues who had supported the Yahoo deal.

His conviction has been on display — often controversially — as Facebook has confronted the thorny issues of online privacy. When Facebook introduced its News Feed feature in 2006, for instance, Mr. Zuckerberg was convinced that it would be a hit. Instead, many users were outraged that their home pages would automatically broadcast every profile change and activity.

At one point, Facebook got a call from the Palo Alto, Calif., police department, asking if the company could turn off the News Feed. People were threatening to stage a protest march downtown.

Mr. Zuckerberg eventually apologized — but he left News Feed largely intact. Indeed, even now, he is pressing users to share more information, often without their full understanding, and dials back only when the complaints grow loud. Beacon, an advertising program that automatically publicized consumers’ purchases on sites like Amazon to Facebook, turned out to be a flop. Mr. Zuckerberg abandoned it and later settled a related class action by paying $9.5 million to set up a privacy foundation.

Then he simply moved on.

“The dude is relentless,” one former Facebook employee says. “If it doesn’t work one way, he keeps coming back.”

THE humdrum offices of The Washington Post, in northwest Washington, are a world away from Silicon Valley. But the Facebook story took a crucial turn there in early 2005, when, through a Harvard classmate, Mark Zuckerberg met Donald Graham of the Washington Post Company.

Mr. Zuckerberg and Sean Parker — a co-founder of Napster, an early confidant and the company’s first president — traveled to Washington to see if the company would invest in Facebook.

As David Kirkpatrick later recounted in “The Facebook Effect,” Mr. Zuckerberg was struck by the differences between the Post Company and technology companies in Silicon Valley.

“I was just blown away by the difference in culture, that it’s just a long-term focus there, and that they’re so focused on the brand,” Mr. Zuckerberg recalled in the book.

Mr. Zuckerberg would later shadow Mr. Graham for four days, sitting in on meetings and analyst presentations, trying to learn what it was like to run a large company. In 2009, Mr. Zuckerberg invited him to join his board.

The Post never did invest in Facebook.

Mr. Zuckerberg was impressed not only with Mr. Graham’s long-term view, but also with the Post Company’s shareholder structure. Like many media companies, it has two classes of stock. This setup gives the Graham family significant voting power.

Mr. Zuckerberg emulated that structure. When Facebook goes public, he will own a minority stake in the company — but will control more than half of the voting power.

Mr. Parker’s story, too, provided valuable lessons. Mr. Parker, now 32, taught Mr. Zuckerberg the importance of maintaining power over his company. For Mr. Parker, the matter was personal. As a founder of Plaxo, the online address book, he had fought bitterly with his venture capital backers and eventually left the company poorer than he’d hoped.

Eager to protect Mr. Zuckerberg, he helped come up with legal documents that guaranteed Mr. Zuckerberg two Facebook board seats. (Mr. Parker got one.) As long as Mr. Zuckerberg held a seat, his shares couldn’t be taken from him. When Mr. Parker left Facebook, he gave his seat to Mr. Zuckerberg.

SEAN PARKER played another crucial role at Facebook: he helped recruit many of its early employees. Among them were Matt Cohler, then a rising star at LinkedIn; Kevin Colleran, one of Facebook’s first sales executives; and Aaron Sittig, who worked with Mr. Parker at Napster and became Facebook’s lead designer. Mr. Parker also ran Facebook’s early financing rounds, acting as a go-between to influential investors like Mr. Thiel, a co-founder of PayPal.

But Mr. Jobs, too, taught Mr. Zuckerberg about hiring. In his early days at Apple, Mr. Jobs often sounded out potential hires during long walks around Palo Alto.

Mr. Zuckerberg sought out Mr. Jobs early on at Facebook. The two were known to take afternoon walks in Palo Alto, and they nurtured what many describe as a meaningful personal relationship despite their eventual business rivalries. (Mr. Zuckerberg was also inspired by Apple designs, and modeled Facebook’s F8 conferences on annual Macworld conferences. Mr. Zuckerberg later adopted Mr. Job’s walkabout approach to hiring. When Facebook was headquartered in Palo Alto, he often took high-level new recruits on hikes along the wooded trails near his offices.

Several people who were hired this way say the strolls usually meandered along the trail — with Mr. Zuckerberg asking questions of the new recruit along the way — and ended atop a lookout. There, Mr. Zuckerberg would explain the terrain in front of them and his vision for the future.

“He pointed out Apple’s headquarters, then Hewlett-Packard and a number of other big tech companies,” one person who was recruited by Mr. Zuckerberg told The New York Times last year. “Then he pointed to Facebook and said that it would eventually be bigger than all of the companies he had just mentioned, and that if I joined the company, I could be a part of it all.”

“WE don’t need to get any lawyers involved. Let’s just talk alone.”

Those are the words Mr. Zuckerberg often uses, over the phone or by Facebook Instant Messenger, in an initial overture to a company he wants to buy. Over the past eight years, Facebook has bought a string of start-ups, such as FriendFeed, Snaptu and Gowalla, and announced in April it would buy Instagram for $1 billion.

As chief executive, Mr. Zuckerberg has proved himself a savvy negotiator of deals.

“Mark will convince companies he is going to acquire that they should accept a deal on a projected valuation,” says one C.E.O. who held talks with Mr. Zuckerberg. “Then, he’ll go back to investors who want to put money into Facebook and say, look, this start-up was going to join us at this valuation, so you should invest at that number.”

For example, during the closing hours of the Instagram talks, Mr. Zuckerberg and Kevin Systrom, the Instagram chief executive, reached a deal in private, at Mr. Zuckerberg’s $7 million, five-bedroom home in Palo Alto, while their lawyers and advisers watched from afar.

“As the deal came to a close, Mark and Kevin sat outside and ate steaks and ice cream, while the lawyers all sat inside watching ‘Game of Thrones,’ ” said a person who was present. It wasn’t lost on those there, this person said, that “two 20-somethings were alone hammering out the terms of the deal.”

The Instagram deal underscored how Mr. Zuckerberg has cemented his power over the last eight years. Facebook’s board, which got a brief e-mail about the deal a few days before it was announced, according to those close to the company, never pushed back.

And so now, as C.E.O., Mark Zuckerberg has never been more secure — or, given the coming I.P.O., more exposed. By most accounts, he has few close friends outside the company. He has a girlfriend, Priscilla Chan, and a dog, Beast. Like his master, Beast, a Puli with thick dreadlocks, has a page on Facebook. (It has 541,786 “likes.”)

On some evenings, as dusk falls in Menlo Park, Mr. Zuckerberg and a small circle of his lieutenants play roller hockey, and maybe knock back a beer or two, outside Facebook’s headquarters. The game is a relatively recent arrival there, although Mr. Zuckerberg has played it since his boyhood in Dobbs Ferry.

Out in the courtyard, the crew — almost all of them men, almost all in their 20s — hoot and skate until it is almost too dark to see much of anything. Across the courtyard floor, giant black tiles spell out the word “hack.” They’ve nicknamed their rink “Hack Stadium.”

The Facebook boys and their captain, Mark Zuckerberg, skate hard. They line up shots with care. And they play to win.

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From: zax5/13/2012 9:42:24 AM
3 Recommendations   of 2967
What Eduardo Saverin owes America. (Hint: Nearly everything.)
by Farhad Manjoo

When Eduardo Saverin was 13, his family discovered that his name had turned up on a list of victims to be kidnapped by Brazilian gangs. Saverin’s father was a wealthy businessman in São Paulo, and it was inevitable that he’d attract this kind of unwanted attention. Now the family had to make a permanent decision. They hastily arranged a move out of the country. And of all the places in the world they could move to, the Saverin family saw only one option. They took their talents to Miami.

Would it be too much to say that America saved Eduardo Saverin? Probably. Maybe that’s just too overwrought. The Saverins were just another in a long line of immigrants who’d come to America for the opportunity it affords—the opportunity, among other things, to not have to worry that your child will be kidnapped just because you’ve become wealthy.

Just because his parents moved here doesn’t mean Eduardo Saverin owes America anything, right?

Yet if you study the trajectory of Saverin’s life—the path that took him from being an immigrant kid to a Harvard student to an instant billionaire to the subject of an Oscar-winning motion picture—it emerges as a uniquely American story. At just about every step between his landing in Miami and his becoming a co-founder of Facebook, you find American institutions and inventions playing a significant part in his success.

Would Eduardo Saverin have been successful anywhere else? Maybe, but not as quickly, and not as spectacularly. It was only thanks to America—thanks to the American government’s direct and indirect investments in science and technology; thanks to the U.S. justice system; the relatively safe and fair investment climate made possible by that justice system; the education system that educated all of Facebook’s workers, and on and on—it was only thanks to all of this that you know anything at all about Eduardo Saverin today.

Now comes news that Saverin has decided to renounce his U.S. citizenship, most likely to avoid a large long-term tax bill on his winnings in the Facebook IPO. Saverin owns about 4 percent of Facebook stock. By renouncing his citizenship last fall, well in advance of the IPO, Saverin will pay an “exit tax” on his assets as they were valued then. But he’ll pay no tax on income derived from stock sales in the future—that’s because he now lives in Singapore, which has no capital gains tax. It’s unclear how much this move will save him, since it depends on how Facebook’s stock performs. But let’s say the value of his stock doubles over the long run, from an estimated $3.8 billion now to around $8 billion. If that happens, he won’t pay any tax on the $4 billion increase in value—which, at a 15 percent capital gains rate, will save him $600 million in taxes.

Is this fair? No. It’s worse than that, though. It’s ungrateful and it’s indecent. Saverin’s decision to decamp the U.S. suggests he’s got no idea how much America has helped him out.

So, to enlighten him, let’s list all the ways Eduardo Saverin has benefitted from America. First and most obviously, he lived a life of relative safety in Miami, something that wasn’t guaranteed for him in Brazil. Second, also obvious: If Saverin hadn’t come to America, he wouldn’t have met Mark Zuckerberg, and—not to put too fine a point on it—if Saverin hadn’t met Zuckerberg, Saverin wouldn’t be Saverin.

Third: Harvard. Zuckerberg and his cofounders met in the dorms, and while Harvard is a nominally private institution, it enjoys significant funding and protections from the government. In 2011, Harvard received $686 million, about 18 percent of its operating revenue, from federal grants; that’s almost as much as it received from student tuition.

Would Facebook have been founded without Harvard? Perhaps—maybe Facebook would have come about wherever Zuck went to school. Still, there were social networks at lots of other schools. There was clearly something about Harvard’s student body that was receptive to Facebook.

More generally, elite, government-sponsored American universities like Harvard have been instrumental in the founding of many tech giants. Microsoft’s founders met at Harvard. Yahoo and Google’s founders met at Stanford. But even if you believe that these universities shouldn’t claim credit for the companies they brought about, it’s still hard to argue that Facebook would be where it is today without the American taxpayers’ large investment in public education. Facebook depends on really smart people to make its products. You don’t get smart people without tax dollars.

Fourth: The American government’s creation of the Internet. The strangest thing about Silicon Valley’s libertarian politics is how few people here recognize how the Internet came about. ARPANET, the earliest large-scale computer network that morphed into the Internet, was funded by the U.S. Defense Department, as was the research into fundamental technologies like packet switching and TCP/IP. Delve deeper into the network and you get to the microprocessors that run the world’s computers—another technology that wouldn’t have come about by loads of federal research grants.

Even the Web itself can trace its founding to government grants. Tim Berners-Lee worked at CERN, the research group funded by Europeans governments, when he worked on the HTTP protocol. Mark Andreessen worked at National Center for Supercomputing Applications—which is funded by in a partnership between the federal government and the state of Illinois—when he created the Mosaic Web browser. Then you’ve got GPS, a technology that makes much of the mobile revolution possible, and one that is wholly created and operated by the U.S. government.

Fifth: The judicial system. If it weren’t for the U.S. courts and laws, Saverin might have been permanently shut out of Facebook. But in 2009, he settled a lawsuit with Facebook that gave him credit as a co-founder and his current stake in the firm. In other words, it’s only because Saverin could sue Facebook and depend on a relatively fair judicial system that he’s got the billions on which he’s now skirting taxes.

Fair courts aren’t to be taken for granted, by the way. There are many places in the world where, if you are wronged by a billionaire, you wouldn’t be able to do anything about it. One of those places is Brazil; according to Transparency International, the courts in Saverin’s birth country are beset by corruption.

Now, none of this is to discount Saverin’s own contributions to Facebook’s success. Though he was only there at the beginning—and although he had some pretty terrible ideas for Facebook, including his plan to show interstitial ads when you went to add a friend—let’s assume that he did in fact add $4 billion of value to the world.

The question is, what’s fair for him to keep?

As an immigrant myself, I’ve got no patience for the argument that he should keep all of it. Pretty much everything in my life that I enjoy wouldn’t have happened without my being in the United States. My education, my job, my wife and family, the fact that I’m not persecuted for my race or religion (I was born in South Africa), the fact that I can sometimes forget to lock my doors at night and not end up killed by marauding bands—I hate paying taxes as much as the next guy, but when I think about all the ways that the United States has been integral to everything in my life, taxes seem like a tiny price.

Now, remember that the tax rate on long-term capital gains is only 15 percent. In other words, Saverin gets to keep 85 percent of everything he’s making from Facebook’s IPO. Given how much of his wealth depends on the government, that’s more than fair.

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To: zax who wrote (339)5/13/2012 9:55:57 AM
From: Lahcim Leinad
1 Recommendation   of 2967
It’s ungrateful and it’s indecent. Saverin’s decision to decamp the U.S. suggests he’s got no idea how much America has helped him out.
As an immigrant myself, I’ve got no patience for the argument that he should keep all of it. Pretty much everything in my life that I enjoy wouldn’t have happened without my being in the United States.
Amen again!

On the other hand though, given all of the above, good riddance. Squirm away, Saverin. This is America. We don't need your kind here. Bye!

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From: Glenn Petersen5/13/2012 2:34:36 PM
3 Recommendations   of 2967
How Goldman Sachs Blew The Facebook IPO

Henry Blodget
Business Insider
May 8, 2012, 9:47 PM

IPOs are wildly profitable deals for Wall Street investment banks, and they come with huge bragging rights.

So it's no surprise that the biggest Wall Street banks fought over the Facebook IPO for years.

The inside story of the Facebook showdown reveals a lot about the relative status of Wall Street banks in Silicon Valley these days, especially Morgan Stanley and Goldman Sachs.

And it also reveals a lot about Facebook.

Facebook's in its IPO "quiet period" right now, and no one who knows anything is willing to talk publicly about it. This story is based on background interviews with more than a dozen Valley bankers, investors, and executives over the past few months, all of whom insisted on anonymity. (Some details from this story were also excerpted in this week's issue of New York Magazine, which you can read here.)

The story starts, as most Facebook stories do, with 27-year-old CEO Mark Zuckerberg, who used to tell colleagues he never wanted to go public...

* * *
In the Silicon Valley of the 1990s, not wanting to go public would have been heresy. Every tech startup in the Valley set its sights on an IPO, because going public meant getting pots of cash for the company, liquidity for shareholders, and a highly valued stock that you could use to scarf up other companies.

After the dotcom bust, however, the market for speculative IPOs evaporated, and many of the drawbacks of being public became clear:

  • You had to fight bad press and lawsuits whenever your stock dropped
  • You had to blow millions complying with SEC regulations
  • You had to persuade analysts to set estimates low so you could “beat expectations” each quarter even though you performed as expected
  • You had to explain your stock price—high or low—to your distracted employees, and,
  • You had to please impatient public-market investors, instead of focusing on creating great products and investing for the long haul.
In short, after the bust, many tech companies realized that being public was mostly a pain in the ass. And the private market soon created ways for companies to get the benefits of being public without going public—via large late-stage private investors or new marketplaces for private stock sales.

This was one reason Mark Zuckerberg didn’t want to take Facebook public: He didn’t need to. Facebook was able to get all the money and liquidity it wanted in the private market. The other reason was about control: Zuckerberg worried that going public might mean selling stock to shareholders who wanted Facebook’s first priority to be its business rather than its product—a fate he had spent Facebook’s entire history trying to avoid.

So Zuckerberg wasn’t kidding when he told early Facebook employees that he wanted to stay private forever.

And if a byzantine SEC rule hadn’t required Facebook to begin filing the same sort of financial disclosure as a private company as it would have as a public company, Zuckerberg probably would have postponed the deal even longer.

But that SEC rule—which forces companies to begin filing detailed documents when they have more than 500 shareholders—hit Facebook this spring. And if Facebook was going to go through all the hassles of being public, it might as well also get some of the benefits. Namely:

  • a highly liquid market for its stock, which would finally allow some of Facebook’s large institutional investors to sell (Facebook employees have been dumping stock via the private market for years), and
  • a public currency with which to make acquisitions (it’s difficult to use private stock to buy companies because the target company often thinks the stock is worth less than the buyer does).
Over the years, Zuckerberg had also become more comfortable with the idea that, thanks to the company's dual classes of stock, which gave him 57% voting control of Facebook with only a 28% financial stake, he would never have to give up control: Public shareholders could squawk about the way he ran the company, but they would have no legal way to force him to run it differently. Thus, as he saw it, he would never be forced to screw Facebook up.

So, last year, Zuckerberg finally became resigned to the idea of going public and pulled the trigger.

Which is to say, he delegated the bank-selection process to his Chief Financial Officer, David Ebersman, and went back to focusing on Facebook’s product...

For the past couple of decades, Goldman Sachs and Morgan Stanley have ruled the tech IPO business, with one of the firms serving as lead manager on most of the hottest deals.

Goldman took Microsoft, Yahoo, and eBay public, for example. Morgan won Netscape and Google. Although other firms have picked off an occasional deal over the years, when it comes to tech banking, Goldman and Morgan remain in a class by themselves. To be sure, having Morgan or Goldman take you public is no guarantee of success—they’ve banked plenty of dogs. But going public without Morgan or Goldman means signaling that you weren’t good enough for Morgan or Goldman. In other words, that your company is second-rate.

In the last few years, though, there has been a shift in the Morgan-Goldman power balance in the Valley. Specifically, until very recently, Morgan Stanley has won almost all of the hot IPOs.


Several factors, starting with the bankers involved.

Unlike other Wall Street businesses, corporate finance is still based on relationships: If you’re raising money or buying or selling your company, you’re hiring a person in addition to a firm.

And that person—the senior banker on your deal—is someone you’re going to have to interact with every day for months. Getting your deal done will be a frustrating process, because things rarely go according to plan. And the banker who wooed you during the courting period will always be tempted to delegate you to peons while he or she rushes off to woo someone else.

So you’d better like your banker, and trust his or her judgment. And he or she had better listen carefully to you, understand your business, and return your emails and calls.

In IPOs and other financings, banks can serve as either "lead managers" or "co-managers," with the former conferring vastly more cash and bragging rights. Within these categories, however, are other subtle but important distinctions. On Facebook, for example, three Wall Street banks were named “joint lead manager," but only one bank truly truly won the deal: The so-called "left lead." The other "joint leads," meanwhile, have impressive titles, but they are lackeys consigned “to the right.”

The “left” and “right” designations are literal: They refer to the bank’s relative positions on the cover of a company’s IPO prospectus.

The first bank listed, whose name is on the left side of the page, is the company’s primary banker. This bank manages the IPO process, runs the order book, and sets the IPO price. This bank also takes home the biggest bragging rights and largest share of the IPO payday. The names of the other lead banks on the IPO, meanwhile, appear to the right of the primary bank. Although these slots also confer huge bragging rights and fees, they are subordinate. In the eyes of other chest-pounding Wall Street bankers, being “to the right” means you lost:

Below the “lead managers” on the prospectus cover, meanwhile, are the co-managers, who get a smaller share of the IPO fees and bragging rights than the leads. On an IPO as big as Facebook’s, being a co-manager is still highly lucrative, but it’s miles from the prestige and money of being a lead.

Facebook's IPO is one of the biggest IPOs in history, so the glory and fees showered upon Facebook's lead banker were always going to be enormous.

If there has been one assignment that tech bankers and Morgan and Goldman wanted more than any other over the last few years, therefore, it has been to be selected by Facebook as the "left lead."

The IPO that started Morgan Stanley’s recent run of the tech table was LinkedIn, which went public in a blockbuster deal last spring. LinkedIn was all Morgan Stanley. Goldman wasn’t even a co-lead. And LinkedIn’s prestige and performance set Morgan Stanley up to win a whole string of big Internet deals that followed, including Pandora, Zynga, and Groupon.

The reason LinkedIn chose Morgan Stanley to lead its IPO, according to sources familiar with the decision, came down to the bankers involved and the way they wooed the company.

Morgan Stanley’s lead Internet banker is a 46-year old California native named Michael Grimes. Grimes has been at Morgan Stanley since the early 1990s, when legendary Valley banker Frank Quattrone ran the firm’s technology group. When Quattrone rocked the tech banking industry by defecting to a German bank in the late 1990s, Grimes stayed put. And he is now the co-head of Morgan Stanley’s global technology group.

Grimes is variously described as “a very strong banker,” “incredibly hard-working,” “honest, direct, and smart,” “weird,” and “a dork.” He is considered weird, one VC says, because he “plays video games until 5 in the morning.” Grimes is also “not a typical white-shoe banker.” Instead of getting an MBA at Wharton or Harvard Business School, Grimes went to Berkeley and graduated with degrees in Electrical Engineering and Computer Science. Such schooling would be a career liability at Morgan Stanley’s headquarters in New York, but in Silicon Valley it’s an asset. Most of the tech CEOs, board members, and investors that Grimes spends his life sucking up to are geeks, so it helps that he’s also one.

(The executive who called Grimes a “dork,” meanwhile, tells this story as evidence: Once, many moons ago, when Grimes was a mid-level banker, he received a call from a client in the middle of a conference room in which more than a dozen lawyers, bankers, accountants, and executives were sitting around a table drafting a financing document. Instead of simply excusing himself from the room to take the call, this executive says, Grimes slid under the table with his cell phone, There, he murmured audibly to his client while the drafting session continued.)

Most of Grimes’ biographical information is spelled out on his Wikipedia page, which is assiduously maintained. Some of Grimes’ competitors snicker about this, suspecting Grimes of hiring a PR firm to game Wikipedia and buff up his image. The competitors also hold this rumored PR firm responsible for a series of pro-Grimes puff pieces that appeared in the country’s most respected publications in the months before Facebook selected its underwriters—a press parade so obviously staged that one competitor described it as “hysterical.”

But whether or not Grimes professionally polishes his image, he has a good one to polish. His clients rave about him. And they hire Morgan Stanley to get him.

The same is not often said for a Goldman banker named Scott Stanford, who used to be Goldman’s main Internet banker in the Valley. Stanford competed with Grimes for the LinkedIn IPO and several other key deals -- which Goldman lost.

Scott Stanford looks good on paper--Harvard, Harvard Business School--and he has his supporters. He cultivated a relationship with the brilliant Russian investor Yuri Milner of DST, who charged into Silicon Valley a few years ago and rocked the establishment by shoveling hundreds of millions of dollars into some of the hottest companies (including Facebook). He also seems to play better in New York, where one Internet executive describes him as "perfectly smart," if not particularly impressive. But in the Valley, at least in some quarters, it's a different story.

In Valley tech-speak, the term “UI” is short for “user interface”—the part of a software program or gadget that you actually interact with. Scott Stanford's first challenge on LinkedIn, says one Valley executive familiar with LinkedIn’s IPO decision process, is that “his UI is off-putting.”

Pressed for details, the executive mentioned Stanford’s “slicked-back hair.” Morgan Stanley’s Grimes also has “UI issues,” this executive says—“he’s a banker—he talks very fast”—but Grimes is so substantive that you get past that. Stanford, meanwhile, “flew at a high level” and was “very theoretical” when describing LinkedIn’s business, which I think is a gracious way of saying that he was a blowhard. In contrast, Grimes and Morgan Stanley team were “very bright and very passionate about the business,” diving deep into the product arcana.

In sucking up to LinkedIn before the IPO, Stanford and Goldman also made three key mistakes.

First, they entrusted the LinkedIn relationship to a relative peon: Stanford was merely the head of Goldman’s Global Internet group, whereas Grimes was the head of Morgan’s whole technology group. There’s nothing that tells you about a firm’s commitment to your company than the rank of the banker assigned to you.

Second, Stanford sucked up to the wrong guy: He schmoozed LinkedIn’s founder and board member Reid Hoffman instead of the company’s CEO Jeff Weiner and CFO Steve Sordello, both of whom played a big role in the decision.

Third, Goldman got there too late.

For more than a year leading up to LinkedIn’s IPO, Michael Grimes and Morgan had been doing favors for LinkedIn’s executives—analyzing parts of their business, showing them deals, helping them with their finance operations—all the while building a relationship.

Goldman, meanwhile, showed up right before the IPO and said, basically, “Hi, we’re Goldman—hire us.”

Like most companies, LinkedIn held what is known as a “bake-off” before formally choosing its underwriters. Specifically, it invited bankers from several Wall Street firms to pitch its executives and board and make a case about why LinkedIn should choose their firms to manage the IPO.

Both Morgan and Goldman made strong pitches at the bake-off, a person who sat through them says. But Morgan included in its pitch-book a list of all the work Morgan had already done for LinkedIn, for free, while Scott Stanford was buttering up the wrong guy and Goldman’s bigger hitters were off focused on other deals. And the relationship Morgan built through all that free work all but sealed the deal.

Not that Goldman gave up easily.

In its LinkedIn pitch, Goldman rolled out what would become its new secret weapon in the Internet IPO wars, a former Army Ranger and 1990s-era Internet analyst turned banker named Anthony Noto. Noto was Goldman’s Internet analyst during the dotcom boom and bust. Like some of us, Noto made his share of lousy calls in the bubble, but unlike some of us, Noto survived them. Noto left Goldman in 2007 to become CFO of the NFL and then returned in 2010 as the co-head of Goldman’s Technology, Telecom, and Media (TMT) group, as the equal partner of a Valley-based banker named George Lee.

When Noto first got back to Goldman, he was focused on media clients, and he watched helpless from New York as Goldman lost Internet deal after Internet deal. Then Noto began spending more time in the Valley. He rekindled his old relationships. He talked with venture capitalists and executives. And he discovered that part of Goldman’s problem was the people on the ground.

So Noto clipped Scott Stanford’s wings and brought in his own people.

(Stanford wasn't fired--he was just marginalized. Now, instead of calling on the hot companies, he gets to call on Yahoo. That's like a military general in the war theater being shipped off to Guam.)

Noto began taking over some of Goldman’s Internet relationships himself.

And he quickly improved Goldman’s reputation and business.

Unlike Michael Grimes and George Lee, Anthony Noto doesn’t have much experience as a banker, but he has experience as a research analyst and CFO, which many Valley executives find equally valuable. They like that Noto can see things from their perspective—the company perspective—instead of just the banker perspective. And they like that he still has relationships with big institutional investors and can talk intelligently about how investors think about stocks.

Noto is described as “relentless”—he refuses to take no for an answer. But his persistence is somehow humble and endearing instead of annoying. Noto works his ass off to try to get new clients, executives say, and then he works his ass off to make them happy when he gets them. More importantly, like Grimes, Noto is passionate about his clients’ technology products.

The best thing about Noto and Morgan Stanley’s Grimes, one Valley CEO says, is that neither are what you normally think of as “bankers.” They work hard. They carry their own bags. They’re eager to please. They display a humility that is often absent on Wall Street. “After all the crap about bailouts and Wall Street,” the CEO says, “the bankers have been so beaten down and humbled that they want to provide great service.”

To Valley executives, the return of Goldman Sachs to the tech IPO fray has been a welcome development: Now they can pit Morgan and Goldman against one another and make them both work harder to win deals. Or, like Facebook, they can hire both firms.

Anthony Noto arrived too late to save the LinkedIn deal for Goldman, but he has since helped Goldman turn its tech IPO business around. And in every deal since LinkedIn, Goldman has been regaining more ground. Goldman won a joint-lead role in the Zynga and Groupon IPOs last year, for example, and it won the recent Yelp IPO outright earlier this year. Most recently, Goldman has grabbed the lead spot for Glam Media and AutoTrader, both of which were big losses for Morgan Stanley and Grimes.

All that momentum, Goldman hoped, would put it in a good position to win Facebook’s IPO. After all, Goldman had not made the same mistakes with Facebook that it had made with LinkedIn: The Goldman banker responsible for the Facebook relationship was not Scott Stanford but George Lee, the co-head of the firm’s TMT group. And Lee had been rubbing Facebook’s shoulders for years.

Lee is a very experienced technology banker. He's also a man with his own UI issue, at least from the Valley's geek perspective: "He's cut from the traditional banker cloth," said one CEO, who added that to him all bankers are indistinguishable. And what is the traditional banker cloth? "He has a perma-tan."

(These UI issues, by the way, go both ways. The prototypical tech entrepreneur is socially awkward, with "bad hair" and grooming habits, and runs around the Valley in sandals. As a result, they make the money guys nervous.)

When you're massaging a company, you want to do everything you can to put your face in front of its executives, in and out of the office. And, when it came to Facebook, George Lee went step for step with Michael Grimes.

In the fall of 2010, for example, Facebook COO Sheryl Sandberg staged a gala benefit in San Francisco for the Cambodian women’s rights activist Somaly Mam. Events like this are a great way for bankers to demonstrate how much they care, and Morgan Stanley’s Michael Grimes wasn’t the only Facebook banker smart enough become a lead sponsor of the event.

The other lead sponsor was Goldman’s George Lee.

“Nobody cared more about Somaly Mam” than Grimes and Lee, one Valley executive joked later.

So Goldman was in an excellent position to win the Facebook IPO. And over the next 18 months it pulled out all the stops, including flying Goldman CEO Lloyd Blankfein out to the Valley a couple of times to schmooze.

Alas, when it came to Facebook, Goldman had another problem...

On January 2, 2011, a startling article appeared in the New York Times. Written by the Times' star Wall Street reporter Andrew Ross Sorkin and a colleague, the article reported that Goldman Sachs had agreed to invest a staggering $450 million in Facebook at a price that valued Facebook at an equally staggering $50 billion.

Furthermore, Sorkin reported, Goldman was planning to offer its clients a chance to invest an additional $1.5 billion in Facebook at the same price via a private stock offering—in other words, Goldman was planning give clients access to a sweetheart pre-IPO deal of a super-hot company that everyone already assumed would ultimately go public at a spectacular price.

At first, this seemed a huge coup for Goldman. The firm was still struggling to overcome the horrendous publicity it had endured during the financial crisis. Rolling Stone writer Matt Taibbi had famously deemed Goldman a “vampire squid” and the name had gone viral. And Goldman had also recently had to pony up $550 million to settle a fraud claim brought by the SEC.

So the fact that Goldman had seduced the smoking-hot Facebook suddenly cast the firm in a lovely new light. By investing $450 million of its own money in the deal, moreover, the firm not only stood to make a monstrous pile of cash when Facebook eventually went public—it also appeared to have “bought” the IPO.

But then everything went to hell again.

Sorkin’s article blindsided Goldman, making public a deal that was supposed to conducted in secret.

The SEC’s rules around “advertising” private placements are strict: To protect investors from getting seduced by super-hyped stock offerings, the SEC prohibits brokerage firms like Goldman from contributing to any publicity around them.

Sorkin’s article hadn’t cited Goldman as a source for his story, but most observers assumed that Goldman had leaked it to him—for precisely the reason the SEC rule wanted to prevent: To whip up publicity and enthusiasm for the deal.

And, boy, did the article whip up publicity and enthusiasm for the deal.

After Sorkin’s article appeared, Goldman hastily sent out an email to clients announcing the offering—and was immediately deluged with orders for the Facebook stock. Over the next week, the press went into a frenzy. Then, alarmingly, the Wall Street Journal reported that the SEC had decided to look into the deal, to see if Goldman had violated its publicity rules.

After the SEC news broke, in a shocking move, Goldman suddenly announced that it was pulling the deal for its U.S. clients, for fear that the enormous publicity had violated the SEC’s rules. Instead, Goldman said, it would place the entire block of Facebook stock with its international clients.

Well, you can’t offer your best clients a sweetheart deal in a company like Facebook and then revoke the offer without pissing those clients off.

So Goldman’s U.S. clients were pissed off.

And so was Facebook.

The botched deal was a major embarrassment for Goldman. But more damaging to the firm’s chances of winning the Facebook IPO was the public animosity for Goldman that it stirred up again.

Facebook’s executives didn’t blame their Goldman bankers—led by George Lee—for the fiasco. But they were taken aback by the public hatred for Goldman.

The reaction at Facebook’s headquarters, one observer says, was basically this:

“Oh my god, we’ve gotten in bed with the vampire squid."

The blown private-placement, which should have cemented Goldman’s hold on the IPO, ended up crippling the firm’s chances of winning it. And because this deal played such a big role in the IPO decision, there’s another tantalizing story about it that’s worth sharing.

The story is that Goldman was not, in fact, the source of the leak to the New York Times—the leak that blew the cover off the private deal, triggered the SEC inquiry, and led to Goldman sustaining another huge blow to its reputation.

That story is that the leak came from JP Morgan or Morgan Stanley.

Before Facebook kicked off the Goldman investment and private-placement, this story goes, Facebook’s CFO David Ebersman placed courtesy calls to the senior bankers at Morgan Stanley and JP Morgan to let them know what was going on. This is standard practice: Ebersman had relationships at these firms that he would have wanted to maintain. The news that Facebook was doing a huge deal with a competitor, meanwhile, would not have been well-received by these bankers, who would have wanted it themselves. So, the calls from Ebersman, presumably, would have left these bankers feeling jilted and pissed.

So then, the story continues, feeling spurned by Facebook and knowing the impact the deal news might have on Goldman if it got out, one of these JP Morgan or Morgan Stanley bankers called the New York Times’s Sorkin and tipped him off.

Who was the tipster?

Maybe it was Jimmy Lee at JP Morgan, the story goes, the legendary head of the investment bank under Jamie Dimon (who also has a close relationship with Facebook). Maybe it was Morgan Stanley's Grimes, who is said to not be a gracious loser. Maybe it was Jamie Dimon himself.

For obvious reasons, this competitor-leak story is popular within Goldman Sachs. The idea that Goldman would be so ham-fisted as to blow up its own deal is mortifying to the firm, whose bankers need to be paragons of confidentiality and discretion.

Supporting the theory is the fact that it wouldn't have made sense for Goldman’s bankers to intentionally leak news of the deal. Given the excitement around Facebook, Goldman would have needed no external publicity to get the deal done.

This "Morgan nukes Goldman with a planted story” story is compelling—a tale of bad-ass corporate sabotage in keeping with the knife-fight analogy that that one banker used to describe the competition for the Facebook deal.

But the word from within the New York Times is that it's not that simple.

Andrew Ross Sorkin pieced together his scoop from tidbits gathered from multiple sources, a Times staffer says. Goldman’s competitors may have been among those sources, but it doesn't sound as though they planted the whole story in an attempt to sabotage the Goldman deal. More likely, it seems, some lower-level banker at Goldman let his excitement get the better of him, and told too many people about the deal.

Regardless, Goldman’s competitors can’t have been unhappy about the way things turned out.

When Facebook hired David Ebersman as CFO in 2009, it was with an eye toward the inevitable IPO. Ebersman would deal with Facebook's finances and Wall Street, neither of which Mark Zuckerberg had any interest in. And Sheryl Sandberg would continue to handle Facebook's business.

A former Wall Street analyst, Ebersman had worked for 15 years at biotech giant Genentech. Competition for the Facebook CFO slot was fierce, but after meeting Ebersman, Mark Zuckerberg knew he had found who he was looking for.

For starters, like Facebook COO Sheryl Sandberg, Ebersman was young—39 at the time—which meant that he might be around for a while.

Second, he understood how important Facebook’s culture and sense of mission were, because Genentech had shared the same qualities.

Third, prior to being promoted to CFO at Genentech, Ebersman had been in an operating role, so he wasn’t just a numbers guy—rather, he knew how finance could serve the rest of the organization.

Fourth, like Sheryl Sandberg, Ebersman was already wealthy, so he wasn’t just looking for a quick score from the IPO.

Ebersman also had other qualities that appealed to Facebook. He plays bass in a band called “Feed Bomb,” a gig that apparently gives him cred with Facebook’s engineers. Colleagues describe him as smart and unflappable: “In a sea of craziness, even the way he talks is cool. It always feels like there’s a there’s a quarter-second pause before he answers… because it feels like he’s deliberating.” A class-mate of Ebersman's from high-school describes him as having been "serious, smart, great at math, emotionally detached, and conversationally challenged." In short, "Zuckerbergian."

One of Ebersman’s missions in the IPO process was to reduce its impact on the rest of the organization—which is to say, on Mark Zuckerberg and Sheryl Sandberg. And by all accounts, Ebersman succeeded masterfully.

For two years, Ebersman built relationships with all the major Wall Street bankers and firms, tossing them small assignments to see how they handled them. He established a rule that all IPO-related discussions and lobbying by bankers had to go through him, and then he assigned one of his deputies, Cipora Herman, the job of handling them.

(Not that this stopped the banks from trying. In addition to Somaly Mam, other bankers tried every other door into Facebook they could think of, including sucking up to Sheryl Sandberg's spouse Dave Goldberg, a Valley CEO, in the hopes that he would say nice things to her about them.)

And when it came time for the IPO, Ebersman departed radically from Wall Street tradition.

Instead of asking Wall Street for advice on what to do, Ebersman told Wall Street what he wanted.

First, he drafted a complete IPO prospectus himself, with no help from Wall Street.

Then, instead of holding a “bake-off” like LinkedIn, he decided on his own which banks he wanted on the underwriting team, what roles they would play, and how much Facebook would pay them. Once he had made his decisions, he took them to Zuckerberg and Sandberg, who approved them.

And then, in February, a few days before Facebook filed its IPO prospectus with the SEC, Ebersman called the banks, told them what the deal was and what role he was offering them, and asked whether they wanted in.

Not surprisingly, they wanted in.

And, not surprisingly, Morgan Stanley won, and Goldman lost.

That wasn't startling—the winner was always expected to be Morgan Stanley or Goldman Sachs, and most people thought Morgan had the edge.

The shock was this:

Goldman was demoted to third in the Facebook-banker pecking order, behind JP Morgan.

JP Morgan is big in New York, but in the Valley, it’s considered a second-tier firm. For Goldman to be pushed to the right of JP Morgan on the highest-profile tech IPO in history, therefore, was just more humiliation.

Nor could Goldman console itself with the knowledge that it would kill it on fees.

“We knew the spread would be terrible,” a Facebook banker from another firm moaned, referring to the percentage fee Facebook's banks would receive, “and it is terrible.”

Specifically, the “spread” on the Facebook deal will be about 1% of the total amount of money that Facebook will raise, as compared to the normal 7% fee on a small IPO.

Of course, 1% of a deal the size of Facebook’s will still produce oceans of cash for the banks--$50 to $100 million, depending on how big the IPO ends up being. And if Facebook trades at a $100+ billion valuation after the offering, Goldman's huge investment in the company will earn have earned it $500+ million in a little more than a year. Its private-placement, meanwhile, will have earned it tens of millions more in fees, as well as a return of more than $1 billion for its international clients.

So it still doesn't suck to be Goldman, even when some clients still think of you as the Squid.

The story that echoed around Wall Street after the IPO news broke was that Morgan Stanley bankers were pounding their chests and bragging about how they had dazzled Facebook and won the deal.

That wasn't really true--if anyone "won" the Facebook deal, it was Facebook--but some celebration was certainly in order.

Another banker involved in the deal was decidedly more gracious.

“However dazzling and indispensable we Wall Street guys think we are," he said, "Facebook knew what they were doing.”

DISCLOSURE: I know lots of Facebook executives and investors, many of whom I like personally. I know lots of Facebook bankers, at least by reputation. I've met Mark Zuckerberg and like him. I know Marc Andreessen, Reid Hoffman, and many of the other players in this drama, and I like them personally. I don't know Scott Stanford, the Goldman banker; if I did know him I might like him and therefore have been less amused by people's descriptions of his "UI." Marc Andreessen, a Facebook board member, is an investor in Business Insider, which I greatly appreciate. So is Allen & Co., another Facebook banker. I know a lot of bankers at Allen & Co. and like them. I don't like to write things that make people I like not like me--not least of which because doing this will make them less likely to tell me cool things. Business Insider's chairman's brother works at Facebook. Facebook sends Business Insider a lot of traffic, which I am happy about and would hate to lose. I have relationships with dozens of other folks that might create conflicts of one sort or another when I write about this topic. So, basically, I'm conflicted out the wazoo.

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From: zax5/13/2012 4:15:19 PM
1 Recommendation   of 2967

May 13, 2012

Hints of Facebook’s Future May Lie in Its Shopping List

Facebook’s billion-dollar purchase of Instagram made a lot of noise — so much noise that few people noticed when the company snapped up two more start-ups just a few days later.

The shopping spree that snagged Tagtile and Glancee was just business as usual for Facebook. It buys small companies on a regular basis — almost two dozen over the last two years — to beef up its team of talented engineers, add to the site’s offerings and sharpen competition with rivals.

Because Facebook tends to be tight-lipped about its plans, the company’s string of acquisitions reveals a lot about how Mark Zuckerberg, the chief executive, is charting a course for its future — and potentially sheds some light on what, and who, may be next on the company’s shopping list.

Despite the fast-paced acquisitions, the social networking juggernaut does not generally do a lot of long-term planning for its mergers and acquisitions. “They are a fairly nimble company,” said Paul Buchheit, an entrepreneur who created the first iteration of Gmail for Google and is now a partner at Y Combinator, a popular incubator of tech start-ups in Silicon Valley. “They don’t have a five-year plan for companies they want to buy. When they see a company that makes sense, they focus on getting things done quickly.”

Mr. Buchheit should know. When he sold his start-up, a social network aggregator called FriendFeed, to Facebook in 2009, the deal was completed at a dizzying pace.

“I met with Mark on a Friday afternoon,” he said. “By Sunday night, we’d signed papers and announced the deal on Monday.” It was a similar fast-paced process for Instagram as well.

Mr. Buchheit contrasted Facebook’s agile approach to older technology companies like Microsoft or Research in Motion that scramble to keep up with peers and “miss the boat because they aren’t fast enough to move.”

For example, during the spring of 2010, the Web was ablaze with speculation that Facebook was desperately trying to buy Foursquare, a mobile location-based start-up that was rapidly adding new users and wooing celebrities to its service. But Foursquare’s executives and investors decided it was too soon to sell.

A few short months later, Mr. Zuckerberg and his company quickly swooped in on a fresh target: Hot Potato, another check-in service, moved the company to the Bay Area and assigned its founder, Justin Shaffer, to the job of developing Facebook’s new Places database of restaurants and stores.

Then Facebook lured away an important member of Foursquare, Nathan Folkman, a software engineer, to work on its new Places product.

Facebook declined to comment for this article, citing a need to avoid publicity leading up to the company’s initial public offering expected later this week.

Facebook’s interest in a particular area can hint at a shift in strategy or a new feature of the service. For example, the company’s recent purchase of Tagtile, a customer loyalty service, suggests that the social networking company is gearing up for a move into e-commerce and coupon deals, an area that Google, Amazon, eBay and Foursquare have begun to dabble in.

The theory has proved correct in the past. For example, in early 2011, Facebook went on a design binge, collecting Snaptu, Sofa, Push Pop Press and Strobe, all companies that produce information graphics and layouts.

As it did with Places, it also cherry-picked talent. Lane Becker, who helped start Adaptive Path, a user-experience consulting firm, said that he was impressed by how efficiently Facebook was able to reel in so many prominent designers, including Mike Matas, who worked on much of the software for the original iPhone and iPad, and Rasmus Andersson, who led design at Spotify, the streaming-music service.

“It was an amazing approach to draw the best people in,” he said. “Designers want to work with other designers.”

The Web buzzed in April last year when Facebook picked up DayTum, the start-up of Nicholas Felton, a designer known for his meticulously and beautiful annual reports that chronicle the ins-and-outs of his life.

Then, in September, the company introduced its sweeping site redesign called Timeline.

Most recently, the company brought on Wilson Miner, the lead designer at Rdio, a streaming-music service, as well as Elizabeth Windram, a former user-experience designer at Yelp, YouTube and Google Maps — a move that, according to Mr. Becker, seems to indicate the company is about to beautify its mobile applications, which many have called unattractive and difficult to use.

“In the mobile space, design is everything,” he said.

Most of Facebook’s purchases are about talent, rather than a certain product or access to a market, said Ray Valdes, an analyst at Gartner. Many of those hires go on to play influential roles at the company.

For example, Bret Taylor, who was one of the founders of FriendFeed, is now the company’s chief technology offer. And Joe Hewitt, who developed the company’s first iPhone app, came to the company in 2007 when his start-up Parakey was bought by Facebook.

Mr. Valdes said that given the company’s track record, it would not be unusual for Facebook to be weighing Pinterest, probably the most talked-about company in Silicon Valley. It’s a site where people pin pictures that interest them and share them with friends. Pinterest’s shining feature — getting people to cluster in groups and interact around mutual interests, like tattoo art or Danish design — has always been a weak spot for Facebook.

Mr. Valdes says he thinks Facebook will continue scooping up mobile services and software tools, including, potentially, companies like Urban Airship, which delivers push notifications to mobile devices, and Parse, a service that provides data storage for mobile devices.

One of Facebook’s big challenges will be to add users, especially in the United States, where growth has slowed. A clue as to how the company might expand a Facebook user’s social network might be found in Glancee, a social discovery app for smartphones that the company bought in early May.

Paul Davidson, who developed Highlight, a rival service that indicates on a smartphone when friends and friends of friends are nearby, said that apps like his and Glancee helped people make new friends. “A person you smile at on the street could actually be someone you have friends in common with,” he said. “It can completely change how we meet and remember people, and I think Facebook understands that.” Mr. Davidson declined to comment on whether Facebook tried to write him a check for his company.

Entrepreneurs and venture capitalists say that Facebook’s approach to wooing start-ups to join its ranks is unconventional for a company of its stature. Rarely are lawyers presiding over early-stage talks. Instead, Mr. Zuckerberg himself often leads what appear to be casual conversations, but he is not a loner. He is often assisted by another executive at the company, such as Vaughan Smith, Facebook’s director of corporate development, who has helped negotiate many of the talent acquisitions made by Facebook in the last four years.

Roger McNamee, a co-founder at Elevation Partners, which invested in companies like Palm, Quora and Facebook, said that the company’s approach reflected the cultural tenor of the company — an acute awareness of the competition and a naked desire to ensure that they stayed ahead of it. “He has shown a preternatural ability to anticipate the innovator’s dilemma and sidestep it. That’s his strength. He knows the problems the company has can be solved by M.& A. Self-awareness like Mark’s is in short supply in the Valley these days,” he said.

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From: Glenn Petersen5/13/2012 6:21:54 PM
1 Recommendation   of 2967
Another piece - and an excellent one I might add - from Henry Blodget:

The Maturation of the Billionaire Boy-Man

Incredibly, Mark Zuckerberg has grown up to become an ace CEO—one whose way of thinking might drive Wall Street nuts.

By Henry Blodget
New York Magazine
Published May 6, 2012

If all goes as planned, Facebook will finally pull the trigger later this month on its long-salivated-over IPO. The deal could value the company in the neighborhood of $100 billion, making founder and CEO Mark Elliot Zuckerberg’s own unusually large stake worth $25 billion. It is a huge sum, even in context. Zuckerberg’s impending fortune is more money than Wal-Mart’s 10,000-plus stores made last year. It’s more than Wall Street paid in bonuses to New Yorkers last year. And it has been amassed in only eight years by a 27-year-old who not long ago passed out business cards reading “I’m CEO, bitch.”

The Zuckerberg most people know is the one depicted by The Social Network: nerdy, insecure, and shady—in no way a mature adult who’s earned such massive wealth. His awkward public appearances over the years have not improved that impression. Zuckerberg may have written the original code for Facebook, the common view of him goes, but the company’s success since then—the service is now used by nearly one-eighth of the world’s population—has come more despite him than because of him. He was just in the right place at the right time.

But this view sells Zuckerberg massively short. Getting a company to grow as fast as Facebook has is extraordinarily difficult, even when users do a lot of the work. It’s even more challenging when you go in having never raised so much as a dollar from investors or managed a single employee, and you’re fighting to stay ahead of some of the richest, most aggressive, and most talented companies in the world.

“Mark has done two things in his twenties,” a colleague of Zuckerberg says. “He has built a global company, and he has grown up.” The second one made the first possible. When early mistakes risked an employee mutiny, Zuckerberg knuckled down and learned how to lead. He made himself the pupil of some of the best bosses in business but had the maturity never to let outsiders sway his overall vision. He got adept at hiring the right people, and, more important, firing senior employees whom the company had outgrown. Appalled at the way he was portrayed in The Social Network, Zuckerberg initially wanted nothing to do with the movie—then, deciding not to let it define him, he rented out theaters in a Mountain View cineplex and bused the entire company over to see it.

“Was he lucky?” another early colleague of Zuckerberg says. “Of course. We’re all ridiculously lucky. But you also make your own luck. The world has overlooked how great Mark is as a CEO.” He was, yes, in the right place at the right time—but he also has leadership qualities that really set him apart.

As Facebook embarks on its IPO “road show,” the question of just how good Zuckerberg is will trail it: His control of the company is such that a bet on the company’s stock is a bet on him. Investors will be wagering on an entrepreneur who’s committed himself to getting better and better as a leader. But they’ll also be betting on one whose commitment to his long-term vision is so deep that he just might drive Wall Street crazy.

When Zuckerberg created “Thefacebook,” there were already similar services on other college campuses. Columbia had one. Stanford had one. Yale had one. At Harvard, Zuckerberg’s schoolmates the Winklevoss brothers had, famously, been trying to get one off the ground for months. Meanwhile, out in the real world, Friendster had amassed more than 2 million users. There was MySpace. There was AOL, which had established the “friend” concept almost a decade earlier with its instant-messaging system’s Buddy Lists.

Today, all those other social networks are effectively toast, while Facebook is closing in on 1 billion ­users. Why? Because Facebook has executed better. And that starts with Zuckerberg’s formidable instincts.

All great consumer-technology products share two attributes, which is that they are cool and easy to use. From the beginning, Zuckerberg knew how to make products that were cool and easy to use. He didn’t “overbuild” Facebook, packing it so full of features that people couldn’t figure out how to use it. He made “uptime” a huge early priority, only rolling out Facebook to new schools when he was certain that the company’s servers and software could handle the traffic load. These steps sound like no-brainers, but they trip up a lot of technology start-ups. Stanford’s predecessor to Facebook, for example, was so complicated that it never really caught on. Friendster grew so fast that its infrastructure got swamped: People wanted to log on, but they couldn’t. A year later, when Friendster finally fixed the problem, its U.S. users were gone.

Many promising tech companies place too much emphasis too soon on the business rather than the product. They worry too much about “making money.” This sounds nuts—aren’t companies supposed to make money?—and it sounds especially nuts in the wake of the dot-com bust. But that crash was a product of investors’ and analysts’ overexuberance (sorry!), not evidence of a fundamental flaw in the tech industry’s start-up ecosystem. In a market where speed is critical, venture-capital funding allows young companies to move faster than they could if they had to rely only on revenues to fund product development. Entrepreneurs who understand that tend to stick around to make plenty of money later.

MySpace was the last company that had a real shot at stopping Facebook. By 2005, it had more than 5 million users; Facebook hadn’t yet reached 1 million. For a while after News Corp. bought MySpace in 2005 for nearly $600 million, it kept growing, and Rupert Murdoch was lauded as the only “old media” mogul who wasn’t a new-media moron. But Murdoch had acquired a flawed service: Rather than forcing its users to interact under their real names—as Facebook did, to the benefit of its social function and its attractiveness as a marketing tool—it allowed them to adopt whatever identity they wanted. Worse, News Corp. was too focused on the business side. MySpace cluttered its pages with ads and underinvested in product development, becoming an ad-choked cesspool.

Zuckerberg, notoriously frugal in his own spending, actively disdained Facebook’s early business efforts, insisting that ads on the service meet his exacting specifications. Advertising might have been helping to fund Facebook’s growth, but advertising wasn’t cool. And Zuckerberg wasn’t about to let ads ruin Facebook.

Most entrepreneurs are creative and impatient, an often fatal combination—trying to do too many things, they spread their tiny companies too thin. This is one trap Zuckerberg almost fell into. After moving his small Facebook team to Palo Alto in the summer of 2004, he turned much of his attention to building a file-share product called Wirehog. Facebook was going gangbusters, but Zuckerberg wasn’t sure it would last; this was his hedge.

Wirehog evolved into one of Facebook’s first apps, but it never amounted to much. At the end of that summer, Facebook raised its first real outside capital, and Zuckerberg’s focus returned. Focus became so central to Facebook’s ethos that in the company’s old office, the word was stenciled over a urinal in the bathroom.

As part of Facebook’s IPO filing, Zuckerberg, following a tradition established by Jeff Bezos at Amazon and continued by the founders of Google and other iconic tech companies, wrote a letter to potential shareholders. The document lays out his management philosophy and priorities (and relays a warning to a certain kind of stock buyer—which we’ll come back to later). The Facebook way, Zuckerberg writes, is to “move fast and break things.” It’s the last crucial part of his natural feel for the tech business, and it’s been critical to his company’s success.

When Zuckerberg launched “Thefacebook,” it blindsided the Winklevosses, with whom Zuckerberg had been working to develop a similar product. The legal settlement Facebook later paid to clean up the resulting mess cost the company millions of dollars, but if Zuckerberg had delayed the launch of his social network—whether to negotiate with the Winklevosses or to perfect the site itself—Facebook might have missed its window. “Move fast and break things” has continued to drive the company’s evolution. Instead of extensively focus-grouping new features, Facebook just rolls them out. Then it listens to users’ screams and makes modifications as appropriate. This technique has produced a lot of duds. It has led, on many occasions, to Zuckerberg having to apologize to his users. It has also produced some of the features that, in the minds of users, today are Facebook—such as News Feed. What the critics miss when they blast Facebook for “mistakes” is that the process is deliberate. And it works.

Zuckerberg all but stopped writing code for Facebook in the summer of 2005. At the time, the company had several million users and about 25 employees. It also had plenty of money, having just raised more than $12 million from Accel Partners, at nearly a $100 million valuation. From then on, Zuckerberg became a full-time leader. And in the beginning, he was horrible at it.

Tech-company founders are often young and socially awkward, with “bad hair” (as one Silicon Valley veteran observes), strange work habits, and scant management experience. This makes money people nervous. So for the past couple of decades, the standard playbook has been to have the founder remain CEO until the company reaches a size that outstrips the founder’s limited ability to run the business, then bring in a “professional CEO”—an experienced executive—to take over. After the professional CEO arrives, the founder usually becomes a neutered figurehead. (If the founder meddles with the course the new CEO sets, it can lead to the founder getting pushed out entirely.) Companies like eBay and Cisco were built this way, as were hundreds of smaller firms that then sold out to bigger operations, yielding handsome scores for their venture capitalists.

In recent years, however, a new approach has taken hold. Championed by V.C. firm Andreessen Horowitz, this contrarian philosophy observes that many of the most flourishing and sustainable technology companies have been built by founder CEOs, not outsiders. Microsoft, for example, was for two decades built and run by Bill Gates, another Harvard dropout who knew nothing about management when he started. Bezos had been an investment banker before he launched Amazon in his garage. Oracle is still run by its co-founder, Larry Ellison. And Google’s CEO is, once again, co-founder Larry Page.

Many companies that have dumped their founders and gone the professional CEO route, meanwhile, have eventually lost their way: Yahoo, for example, has imploded, and Microsoft has struggled since Gates handed off the company to current CEO Steve Ballmer. And then, of course, there’s Apple, which in 1983 recruited the head of Pepsi, John Sculley, to take over, believing that young product visionary Steve Jobs wasn’t cut out to steer the company. You know how that turned out.

In industries in which products don’t change much—paint, bricks, chemicals—professional CEOs thrive. Companies in these industries don’t rise and fall on innovation—they depend on optimization. (Think Coke, which has been selling the same core product for 126 years.) The tech industry works differently. “The nature of technology,” Marc Andreessen, the Netscape co-founder who is one of Andreesen Horowitz’s chief partners, said at a conference recently, “is that the product is always changing. It’s just so rare that you’ll have the same product in five years.” Apple’s recent renaissance began in 2001, with the launch of the iPod. A decade later, the iPod is obsolete, and a staggering two-thirds of Apple’s revenue now comes from products it has invented since 2007.

“If you put a sales guy in charge of the company,” Andreessen continued, “they’ll optimize for the next quarter. Finance guys will optimize the financials.” The company’s founder will optimize the products—and will often have the vision necessary to drive the company’s future innovation. As for the nuts-and-bolts skills necessary to lead a company, those can be learned.

The first thing a leader needs to learn to do is communicate—tell his team where they’re going and why. This is especially true when dozens of employees are being hired monthly, each with his own ideas about how to do things and what’s best for the company. After Zuckerberg stopped coding at Facebook, though, he didn’t communicate—he disappeared. He did so because he hadn’t yet learned another critical leadership skill: the art of saying “no.”

Having missed out on buying MySpace, Viacom was desperate to buy Facebook. Because Viacom was interested, so was Time Warner. So were Google, Yahoo, and Microsoft. Zuckerberg had told his employees he didn’t want to sell. But he didn’t tell that to Facebook’s suitors, at least not directly enough. In one classic example reported by David Kirkpatrick in The Facebook Effect, Viacom’s lead negotiator, MTV president Michael Wolf, told Zuckerberg that he would be in San Francisco in mid-December and offered him a ride back to New York for the holidays. Zuckerberg accepted the favor. Then, because Wolf actually hadn’t been planning to be in San Francisco and Viacom’s planes were booked, he chartered a jet and flew out to the West Coast to pick up his quarry.

While Zuckerberg was getting schmoozed, morale at Facebook deteriorated. Employees began grumbling about the need for a professional CEO. Things got so bad, Kirkpatrick reports, that one of Zuckerberg’s senior executives confronted him at 2:30 in the morning in a diner—the only face time she could get. If Zuckerberg wanted to run the company, the executive told him, he needed “CEO lessons.”

One quirk of Mark Zuckerberg that frustrates colleagues is that he often doesn’t appear to be listening to them. But he is. A week after the diner intervention, Zuckerberg held his first “all hands” meeting. He held more one-on-one meetings with members of his senior team and scheduled an executive retreat. He got better at explaining priorities.

These efforts helped, but they weren’t enough to stop tech pundits from howling that Facebook needed to put a grown-up in charge. So Zuckerberg sought more counsel, cultivating a who’s who of advisers, including Jobs, Andreessen (now a Facebook board member), Don Graham of the Washington Post, LinkedIn’s Reid Hoffman, Accel Partner’s Jim Breyer, and Peter Thiel, an iconoclastic investor and entrepreneur who was Facebook’s first professional funder. “He’s a sponge,” one Valley veteran says. “He’s always asking questions. ‘What do you think about this? What do you know about that? Who’s good at that?’?”

Two years ago, at the All Things D technology conference, Zuckerberg participated in a live interview. He walked onstage in his typical attire: blue jeans, T-shirt, and hoodie. But it was hot under the lights. As his interrogators, Walt Mossberg and Kara Swisher of The Wall Street Journal, jumped right in with the touchiest line of questions—about Facebook’s incursions on its users’ privacy—he began to sweat. That night, all anyone could talk about was how anxious and nervous Zuckerberg had looked.

But if his delivery was a mess, Zuckerberg’s answers to the privacy questions were actually reasonable. Facebook was committed to giving its users full control over their privacy settings. A few minutes later, with Zuckerberg now wiping the sweat from his face with his hoodie sleeve, Swisher asked him, maternally, whether he might like to take it off. (He did.) Toward the end of the conversation, she asked him about the role of the CEO. His answer to this question showed he approaches his job just the right way.

“I’ve always focused on a couple of things,” Zuckerberg said. “One is having a clear direction for the company and what we build. And the other is just trying to build the best team possible toward that … I think as a company, if you can get those two things right—having a clear direction on what you are trying to do and bringing in great people who can execute on the stuff—then you can do pretty well.” For Facebook, that last part has proven an understatement.

One of Steve Jobs’s famous recruiting techniques was to take potential hires on long walks around Palo Alto while sharing his vision for Apple. A Zuckerberg confidant says he’s adopted this tactic and done his idol one better. Near Facebook’s old headquarters in Palo Alto is a trail winding up into the mountains. Zuckerberg led recruits up this trail, the source says, and learned to time his pitch so the full “aha” would hit right as the hike culminates in a breathtaking view.

The team Zuckerberg has built at Facebook, one insider argues, is “pound for pound one of the two strongest management teams in the industry,” with the other being Apple’s. “That did not happen by accident. Mark worked his way through it, position by position.”

“Basically, there are two ways to build an organization,” a former Facebook employee explains. “You can be really, really good at hiring, or you can be really, really good at firing.” Zuckerberg has been really good at firing. “We made some hires that weren’t the right ones. And we were pretty good at correcting that quickly. Mark deserves the credit for identifying and following through with that.” In other cases, key personnel who were good fits simply got outgrown by the company. It can be even harder to jettison those kinds of employees, whose contributions have earned them the loyalty of business partners and colleagues. But here too Zuckerberg did not flinch.

Sean Parker, for example, joined Facebook in the summer of 2004 as the company’s first president. He kept Facebook on track when Zuckerberg’s attention wandered to Wirehog and helped raise the company’s first rounds of outside capital. Most crucially, he did something that will allow Zuckerberg to maintain almost complete control over Facebook for as long as he wants to control it.

Parker, who’d been ousted from both Napster and a later startup, a digital Rolodex service called Plaxo, became obsessed with making sure Zuckerberg didn’t suffer the same fate. In conjunction with raising $500,000 from Thiel, Parker helped restructure Facebook’s voting stock. Zuckerberg today holds 57 percent of those shares, which means that no one, including Facebook’s board members, can legally force him to do anything. This level of control in the hands of one shareholder is extraordinary, and it’s already raising hackles on Wall Street. But it was crucial to getting Zuckerberg comfortable with taking Facebook public, because it means he won’t be compelled to take shortcuts to appease impatient shareholders.

For all Parker brought to Facebook, though, his party-boy ways were deemed too great a liability for him to have a future at the company. Within a year of Parker’s joining the company, he was forced out.

Parker’s departure made room for Owen van Natta, a former Amazon executive hired as head of business development and then promoted to chief operating officer. The 36-year-old Van Natta was Facebook’s first real adult supervision. There were 26 employees when he joined, only two of whom were over 30 years old. During his tenure the staff grew to hundreds, and he had helped hire a lot of them.

Van Natta also got Facebook’s business engine running, assembling its first sales and finance teams and negotiating an investment from Microsoft in 2007 that valued the company at $15 billion. Revenue increased from less than $1 million to more than $150 million. At heart, though, Van Natta was a start-up guy. He thrived on the loosely organized chaos of a young company growing at hyperspeed. His greatest strength was deal-making, not management. In early 2008, in the wake of the disastrous launch of an advertising product called Beacon, Facebook’s senior team determined that the company needed a different kind of executive running the business. So Zuckerberg let Van Natta go.

“The criticism [of CEOs like Zuckerberg] is that they’re overly Machiavellian and don’t care about people,” says a former Facebook executive fired by Zuckerberg. “But this is really what is required to build a long-term sustainable business.” The executive added that while many people canned by Zuckerberg over the years feel screwed over, he couldn’t think of any instance in which Zuckerberg was actually unfair. “He is not a bad guy,” the executive says. “Maybe he’s not a good guy, but he’s not a bad guy.”

Removing Van Natta made it possible for Zuckerberg to hire Sheryl Sandberg, one of the most important moves he has ever made. (A longtime Facebook exec calls the subsequent partnership between Zuckerberg and Sandberg “a blessing from the gods.”) Zuckerberg spent more than 50 hours wooing her away from Google, where she had built and run the online-sales organization. According to a New Yorker article by Ken Auletta, after meeting at a Christmas party in 2007, they had several sit-downs over the next couple of months—first at a café in Atherton, near Sandberg’s house; then, because that was too public, in Sandberg’s kitchen (at the time Zuckerberg was living in a tiny apartment with barely any furniture). When the tech elite flew to Davos for the World Economic Forum that January, Zuckerberg rode with Sandberg and the gang on Google One—the 767 owned by Google founders Larry Page and Sergey Brin. The two spent the flight huddled conspiratorially—a fact that did not go unnoticed within Google. In addition to her being phenomenally good at the job Facebook needed doing—building and managing a global corporation—Zuckerberg found another attribute appealing: She was okay being No. 2. Most of the executives Facebook considered for the COO slot admitted that they would eventually like to be in charge. Facebook already had its CEO, so this was a nonstarter.

For some Zuckerberg skeptics, it’s the quality and stability of the management team he has built that’s made them believers. To attract and retain people like Sandberg, who don’t need to work and can work anywhere, he has had to first be a good boss—talented people don’t like working for assholes—and, second, to let go of aspects of his company that another founder might have clung to. One former Facebook executive believes that the management blunders Zuckerberg made in Facebook’s early years are part of what has made his partnership with Sandberg work so well. The former exec likens this experience to the mistakes he made in relationships before he got married: “All that learning and fucking up in the past is what makes me a great husband.”

The Zuckerberg-Sandberg duo has been so successful—annual revenues have increased from $150 million to nearly $4 billion since she came aboard—that it has now become a new model for tech company-building. Instead of replacing the quirky founder with a professional CEO, companies now try to “go get a Sheryl.”

When talking about Zuckerberg’s most valuable personality trait, a colleague jokingly invokes the famous Stanford marshmallow tests, in which researchers found a correlation between a young child’s ability to delay gratification—devour one treat right away, or wait and be rewarded with two—with high achievement later in life. If Zuckerberg had been one of the Stanford scientists’ subjects, the colleague jokes, Facebook would never have been created: He’d still be sitting in a room somewhere, not eating marshmallows.

Most Wall Street investors would perform miserably on the marshmallow test. Over the past couple of decades, as the money-management business has gotten ever more competitive, they have elevated the narrowly defined concept called “shareholder value” to an absurdly exalted status. Shareholder value, in the minds of most investors, is synonymous with “today’s stock price.” If today’s stock price is higher than yesterday’s stock price, a company’s management is said to have “created” shareholder value. If today’s stock price is lower, management “destroyed” it. It doesn’t matter that the decisions and priorities that boost stocks in the short term—such as inflating this year’s earnings by firing people or cutting product-development spending—are often at odds with decisions and priorities that create greater value over the long haul.

Nor does this obsessive focus on stock prices recognize that companies are a lot more than ticker symbols. They create jobs that employ people. They create products that help people. They devote resources to ensure that they’ll keep creating this value for decades, despite the fact that these investments reduce their near-term profits. In other words, these companies create societal value. As Warren Buffett and a handful of other investors have often observed, this balanced approach allows such companies to create huge value for some shareholders: the ones who stay put for the long term.

It often takes decades to build the sort of companies that the best executives and entrepreneurs hope to create. It can take so long that by the time this value is finally created, many short-term investors will have long since jettisoned their positions. In the last couple of decades, no company has better illustrated this than Amazon. After Amazon went public in 1997, Bezos ignored skeptics who claimed that the company “couldn’t make money,” and then, when Amazon finally proved these nay­sayers wrong, he ignored those who complained that Amazon should make more money. All the while, he kept on investing. Five years ago, for example, when Bezos decided that the world was ready for e-books, he poured resources into the Kindle at the expense of Amazon’s bottom line.

Bezos’s philosophy has created enormous value for Amazon’s customers. It has created more than 65,000 jobs. And it has also created mind-boggling value for Amazon’s long-term shareholders: At a recent price of $225, the stock is trading at about 130 times its IPO price. But that growth did not follow a straight-upward line. When the tech bubble burst, Amazon’s stock tanked. While the company continued to invest in the future at the expense of the present, the stock crawled along sideways for years. Impatient shareholders took losses, then missed out on the windfall when Amazon’s share price started to climb in 2007.

The letter that Zuckerberg included in Facebook’s IPO prospectus is even more direct about his priorities than Bezos’s was. Zuckerberg wrote this letter himself, a Facebook source says, and it begins with the following sentence: “Facebook was not originally created to be a company.”

Rather, Zuckerberg explains, Facebook “was built to accomplish a social mission—to make the world more open and connected.” Then Zuckerberg reveals why he’s telling us this: “We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do.” Later, he spells out it out again. “We don’t build services to make money; we make money to build better services.”

For short-term investors, the letter amounts to three-alarm klaxon: “Don’t buy this stock!” Because not only is Zuckerberg declaring that he considers Facebook’s social mission a higher priority than Facebook’s business and financial mission—a view many on Wall Street would consider treasonous—he also has complete control over the company. All shareholders will be able to do if they disagree with his decisions is complain. And Zuckerberg has long since demonstrated that he’s willing to withstand bitching while he executes his plan.

In early April, Zuckerberg did something that started his critics grumbling anew about his stewardship of Facebook. With the then-rumored IPO date only a month or so away, he decided to buy a little mobile photo-sharing company called Instagram that had no revenue and only thirteen employees. He spent $1 billion of Facebook’s stock and cash to acquire it—without asking anyone else’s permission or advice.

The billion-dollar price tag, many pundits concluded, was clear evidence that the tech bubble was back—an assessment that called into question Facebook’s valuation at a critical moment. A corporate governance expert told The Wall Street Journal that Zuckerberg’s Instagram move was exactly the sort of situation from which boards were supposed to protect minority shareholders.

But experienced tech executives concluded that the deal was shrewd. For the equivalent of around one percent of Facebook’s value, Zuckerberg had bought one of the hottest companies in the white-hot mobile sector, an area where Facebook was weak. He had stolen Instagram out from under an emerging rival, Twitter, and he had eliminated a potential competitor to Facebook’s vital photo-sharing function—both of which will protect the company’s bottom line as the industry evolves. He had done the deal in a weekend, because he still believes in moving fast.

It’s true that in the process, he threatened to delay Facebook’s IPO as the company scrambled to update its SEC paperwork. But to Zuckerberg, a minor IPO delay would have been of little consequence. As CEO, he has more important things to think about.

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