"Zuckerberg owns or controls 88.1% of Facebook’s Class B shares, which each have 10 votes at the annual meeting — 3.98 billion votes overall. There are only 2.4 billion Class A shares, which are the only shares ordinary investors can buy. So any proposal Zuckerberg doesn’t like will fail by nearly a 2-1 margin, assuming all Class A investors vote together, which never happens. (Zuckerberg owns 0.5% of the Class A shares.)"
Clearly all throughout the funding rounds he made sure he controlled the shares that mattered.
Facebook has two types of stock. Class A and Class B. Class B stock gets 10 votes per share, while Class A stock gets 1 vote.
Zuckerberg and other very early people had Class B stock so they can continue to have more than 50% of the vote even when they own less than 50% of the stock.
This was a really popular stock structure in Silicon Valley for a while because it cements founders in control - Evan Siegel at Snap has the same deal, and Adam Neumann at WeWork was about to do it. But now there's a lot of push back against it, and some indexes like the S&P 500 refuse to list new stocks with this dual class structure.
Note that the S%P doesn't have the power to delist stocks. They can drop them from their index (which certainly would cause some reputational harm and probably lower the stock price a bit, at least temporarily), but FB will continue to trade on Nasdaq.
It's his company. When you make the company and give out shares, just get the lawyers to agree to allow you to keep control. Its just legal documents. If you have a good startup VCs and angels may be willing to give you better terms.
> Is it possible, as a founder, to maintain complete control of the board and the company through Series A - E ?
Sure. I've noticed several company IPO announcements on HN lately included the founder-control shares in their IPO prospectus, so it can't be too unique.
The way they do this is by having share classes. Eg Class A shares each gets x% of company and y% of votes. Class B shares get X% of company and [Y/20]% (or 0 sometimes) of votes. The 1/20 is arbitraty btw, it can be any ratio. Sometimes i see A, B, C shares where A is founder/vc tier with extra votes, B is "regular" with smaller votes, and C is no-vote shares, and often C is sold through IPOs into the exchanges.
I have no data on how common these different schemes are, but they're things ive seen in HN-announced start-ups and IPOs in the last year, so take that as anecdotal.
It honestly just comes down to a question of what the investors will let you get away with - if you're viewed as incompetent but sitting on a golden goose investors will push to dis-empower you as much as possible whenever you come knocking for emergency funds. If the company is successful and just seeking some marginal funding that could, alternatively, be secured by bank loans... then you've not given them as much leverage to work with.
Of course it's posssible for a founder to maintain complete control through those rounds. You just have to convince the investors to do the deal on terms that leave you in control. Nothing illegal about that.
And the investors here are very sophisticated venture capitalists. They understand very well what deals look like, and risks, and whatever else. Probably better than the founders themselves.
And they wanted in badly enough that they were willing to sign on terms that kept Zuck in control. And that decision made them very, very, obscenely, filthy, rich. Not a bad investment decision at all.
Minority shareholders do have rights, but keeping control as a founder is easy if the VCs want in badly enough. With facebook, they did.
He maintained full control by growing the value of Facebook so quickly and with so little capital that he could raise financing at astronomically low dilutions.
Not to mention the "minority" shareholders are only minority in voting rights, not minority in shares owned. The multi-class share system is designed to enable exactly this kind of executive behavior, where even a broad shareholder revolt isn't enough.
But in this case the Facebook board (which has a fiduciary duty to the company, not to Zuck) paid $5B when the BATNA had them pay $100M. The extra money bought the company nothing; the only benefits were to Zuck and Sandberg personally, which makes the $4.9B undeclared income -- if they didn't disclose it as part of their compensation on the relevant SEC documents and W2s, it's tax and securities fraud. And hence this lawsuit.
Er, yes. The topic of the linked article - the reason that this is coming to light in the news now - is indeed, that a shareholder lawsuit has been brought against them (Zuckerberg, Sandberg, etc are named defendants and the company is nominal defendant). Direct link, from the article: https://655e71e2-f98d-40e9-822b-081bc894b6af.filesusr.com/ug...
