On Facebook Friends

I know, I am cheating a bit here - hoping a provocative headline will get folks to read what follows.  The story is actually about Facebook and why I think FB will unravel in the next 6-12 months:

Mark Zuckerberg founded Facebook from his Harvard dorm room in 2004.  Everyone is aware of the legend, and most have probably seen the flick "Social Network".

Sean Parker is the iconic, de-facto "Bad Boy" of Silicon Valley.  Yes, they do exist even among Geeks.  Success and sudden acquisition if enormous Wealth is likely the major force in a Geek's social coming out as a "Rock Star".  Not that Sean Parker ain't a Rock Star - at least in the technology world, he is.  At 20, Parker, along with then 19 year old Shawn Fanning founded Napster. Remember Napster? The file sharing network, that took off like a NASA rocket primarily because of people sharing MP3 music files?  No, not Netscape! That was Marc Andreesen's baby, and the first commercial browser based on what we now know as HTML (Hyper Text Markup Language).  Netscape was buried by Microsoft's' muscle flexing, anti-trust violating machinations that led to vigorous law suits and settlements around the world.  But, I digress.  Napster revolutionized how we buy and listed to our music.  A lot of folks got a hold of huge music libraries for FREE.  In fact, Steve Jobs, supposedly copied the Napster idea, along with some enhancements (like Steve Jobs had done all along - XEROX's computer mouse, GUI, etc.) and made it into the mega-billions earner - iTunes.  Without iTunes, Apple would probably be just another struggling computer manufacturer today!  That is an honest assessment, and it is entirely mine.  Anyway, the Recording Industry Association of America, and several bands, led by Metallica sued Napster for violating copyright laws.  Napster eventually shutdown its service because of these lawsuits.  It was a one trick pony.

A couple of years before Napster, Sean Parket had a run-in with the FBI.  Parker had managed to hack into a fortune 500 company's servers, and his IP address (roughly translated - the location of the computer at his Dad's home - Dumb Ass place to hack out of!) brought the Feds knocking on his father's home.  Parker was 16, and served community service time for this felony/misdemeanor.

A couple of years after Napster, in 2002, Parker launched "Plaxo", the first of its kind Contact Address book based in the cloud, that syncs with your MS Outlook contacts.  In 2004, Parker was ousted by the company’s financiers, led by Sequoia Capital, in what was an acrimonious exit that reportedly involved the investors hiring private detectives to follow Parker - a le "High Stakes Divorce style keeping an eye" on your partner!

Story goes like this - Parker saw a website in late 2004, in his girlfriend's dorm room.  That site was TheFacebook.com.  A few months later, jhe met with Mark Zuckerberg.  Zucky hired Parker as Facebook's founding President.  Peter Thiel, Facebook’s first investor once said, that Sean Parker was the first to see potential in Facebook to be "really big," and that "if Mark ever had any second thoughts, Sean was the one who cut that off".

As President, Parker brought on Peter Thiel as Facebook’s first investor. Within the initial round of funding, he lso helped Zuckerberg negotiate to retain control of the company, allowing Facebook the freedom to remain a private company. Parker is credited with championing Facebook’s clean user interface and in developing its photo-sharing feature.  Zuckerberg once said, that "Sean was pivotal in helping Facebook transform from a college project into a real company."

Parker however, was still Parker - during a party in 2005, police entered and searched a vacation home Parker was renting and found cocaine.  Parker was arrested on suspicion of possession but not charged (WTF??). FB's early investors eventually pushed Parker out of Facebook, largely based upon this event.  But, Parker got to walk away with 4% of FB stock.

Yes, that was worth 3.6 billion at the IPO.  Not a bad payday for a Bad Boy's Bad Behavior!  Peter Thiel, meanwhile, walked away with a mere $2.5 billion.  Other FB investors and Friends of Zuck (FOZ) didn't do too shabby either:

Zuckerberg (has to be his own best friend) - $24 billion
Accel Partners - $8.5 bn
Dustin Moskowitz (co-founder and Zuck's roommate at Harvard) - 6.5 bn
Digital Sky Technologies (Russian Investor) - 4.6 bn
Eduardo Saverin (co-founder money man, outsted by Zuck(?), settled for stock) - 3.4 bn.
Note: Saverin is Brazilian by birth, studied in the US, became a US citizen long before IPO, and renounced US citizenship, settling down in Singapore, 6 months before the IPO.  Singapore? WTF!

Sheryl Sandberg (COO since 2008, hired away from Google where she was VP online sales) - 1.8 bn
Microsoft (invested 240 million in 2007) - 1.36 bn
Greylock Partners (invested 27.5 million in FB's series C funding) - 1.275 billion
Meritech Partners, Elelvation Partners (27.5 million in series C) - 1.275 bn
Jim Bryer (of Accel Partners, put 1 million of his own money in) - 510 million
Goldman Sachs (invested 450 million in Jan 2011's 1.5bn capital raise for FB) - 850 million
Chris Hughes (co-founder, left FB in 2007 to work for Obama 2008 campaign) - 850 million
La Kia Shing (the Hong Kong based invested 120 million in FB, in 2007) - 680 million
Mark Kohler (former employee, VP of Product Management) - 680 million
Jeff Rothschild (employee, former co-founder of veritas, data center guru) - 680 million
Adam D'Angelo (Zuck's childhood friend from Phillips Exeter Academy, x-CTO of FB, left in June 2009) - 680 million
Owen Van Natta (employee, joine in 2005 as COO, left in 2008) - 680 million
T. Rowe Price (invested 190 million in April 2011) - 510 million
WTI (investor fund, Parker's contact, invested loaned money to FB initially,  a few hundred thousand) - 425 million

Reid Hoffman (co founder PayPal, invested 40,000) - 375 million
Mark Piincus (co founder of Zygna, 40,000) - 375 million
Interpublic Group (placed client advertising on FB, invested 5 million) - 212 million
Marc Andreesen (angel investor, BOD member) - 225 million
Justin Rosenstein - (x-Google, software guru, x-Fb employee) 170 million
David Choe (painter, served time in Japan, created the murals in the new silicon valley office of FB, took stock as payment) - 170 million
Andreesen Horowitz (investor fund run by Marc Andreesen) - 150 million
Fidelity Investments - 150 million
David Ebersman (employee, CFO, joined in 2009) - 95 million, 400 million after vesting
Mike Schroepfer (employee, VP of Engineering) - 95 million, 370 million after vesting
Theodore Ullyot (employee, General Counsel) - 85 million, 250 million after vesting
Winklevoss Brothers - 37.4 million
Divya Narendra (connectU co-founder with Winklevoss twins) - 18.7 million

The list of insiders/at-one-time-insider is long.  But I think I have made my point.  Zuckerberg and company sold their holdings in VERY LARGE AMOUNTS - 37%+ of IPO shares were offered by insiders - taking home gazillion of dollars.  Zuckerberg and other insider still have large positions in FB, vested or otherwise.  But they are all, unequivocally super rich from the IPO (most richer than Mitt Romney! Sorry, could resist that), having collectively taken home 5.9 billion, in cash (37% of 16 billion raised in IPO).  Cash in the bank is still worth at least 5.9 billion.

Public investors, meanwhile paid $16 billion for shares from the IPO.  As of last night, FB was at $25 and change, a 33% loss from IPO price.  So in the my world of rough arithmetics, FB insiders are sitting on roughly what public investors have lost in 2 weeks of trading!

Here's the reason for this scenic route story - Yesterday, Parker launched a Video sharing service, with great fanfare in New York City, called Airtime Media (of course, Shawn Fanning is also a founding member for Airtime.  See, friends take 'care' of friends).  During the lavish party for Airtime's debut, Parker said:

“Facebook isn’t helping you make new connections, Facebook doesn’t develop new relationships, Facebook is just trying to be the most accurate model of your social graph,” Parker said at the event. “There’s a part of me that feels somewhat bored by all of this. There’s no room for serendipity.”

Sean Parker made a fortune off of his short stint at Facebook.  Notice how his opinion of FB changed between 2004, and yesterday, when he launched a "single feature" social network business model company, that will directly compete with FB for advertising dollars.  It is too early to write epitaphs for FB, regardless of Parker's ultra low present opinion.  He is talking out of self interest.

The Lesson should be obvious.  "There is something about Facebook Friends" (with apologies, to "Mary"!)  Insider selling lockout will end in mid November 2012, when insiders will be free to setup "Estate Planning" systematic sale of their leftover FB stocks.  Most, if not all the 'real talent' at FB will move on.  That is the nature of the beast.  Way too many people have earned (?) their financial freedom.

I doubt FB will survive past the next 24 months.

Good Luck Zuck!