Facebook, Inc.

Created February 2, 2012

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Facebook, Inc.
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www.privco.com/private-company/facebook-inc

TABLE OF CONTENTS
About PrivCo 3
Legal Disclaimer 4
Business Summary 5
Company Overview 6
Ownership 7
Industry Information 8
Competitors & Comparables 8
Charts, Financials, & Statistics 9
Public / Private History (PPH) 37
Mergers & Acquisitions 38
Funding Activity 41
Detailed Business Description 55
Exhibits 74
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Private Companies Investors VC Fundings Private Equity Deals M&A Deals
PRIVCO MEDIA, LLC.
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New York, NY 10011
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[email protected]
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valuations)
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attempts
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BUSINESS SUMMARY
Facebook, Inc. is a privately held social networking site built to make it easy for people to share information with their
friends in a trusted environment. By presenting people with information that is relevant to their lives, Facebook has
become a part of many peoples daily routine. Facebook membership was originally limited to Harvard students and then
to college students in general, but has since spread worldwide.
Founded in 2004 by a group of Harvard students led by Mark Zuckerberg, Facebook is headquartered in Palo Alto,
California. In January 2011, Facebook raised $1.5 billion, one of the largest amounts of venture capital ever raised by a
private company. The investment was made in part through a special purpose investment vehicle arranged by Goldman
Sachs that allowed the investment firms wealthy clients based overseas to invest in Facebook alongside investemensts
from Digital Sky, Goldman's private equity funds, and Goldman Sachs itself.
Facebook filed for its much anticipated IPO on February 01, 2012.
Major Sources of Revenue:
Ad sales
Virtual currency sales (Facebook Credits)
Third-party partnerships
Data sharing / analytics
Major Costs:
Recruiting and retaining high-level engineering talent
Servers/technology infrastructure maintenance & expansion
Acquisitions (quite often acq-hires, or acquiring a company for its talent)
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COMPANY OVERVIEW
Company Type: Private
Company Tags: PE Backed
VC Backed
Year Founded: 2004
Formerly Named: TheFacebook, LLC
Fiscal Year End: 12/31
Address: 1601 Willow Road
City: Menlo Park
State/Province: California
Postal Code: 94025
Country: United States
Phone: 650-543-4800
Website: www.facebook.com
Corporate Organization
Subsidiaries: fbFund
Facebook Payments, Inc.
Brands: Facebook Credits
Facebook Timeline
fbFund REV
Founders: Chris Hughes
Dustin Moskovitz
Eduardo Saverin
Mark Zuckerberg
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OWNERSHIP
PrivCo's Ownership table displays who owns Facebook, Inc., including owner name and each type of owner (whether
family, individual, private equity firm, etc.)
Owner Name Type of Owner % Ownership Stake
Mark Zuckerberg Individual 28.2%
Facebook Employees Employees / Management 25%
Accel Partners Venture Capital 11.4%
Dustin Moskovitz Individual 7.6%
Digital Sky Technologies Private Equity 5.5%
Eduardo Saverin Individual 5%
Sean Parker Individual 4%
Foreign Goldman Sachs Clients Other 2.8%
Peter Thiel Individual 2.5%
Greylock Partners Venture Capital 1.5%
MeriTech Capital Partners Venture Capital 1.5%
Elevation Partners Venture Capital 1.5%
Microsoft Corporation Corporate 1.3%
Goldman Sachs Private Equity Private Equity 0.8%
Li Ka-Shing Individual .75%
Jim Breyer Individual .5%
Western Technology Investment Private Equity .5%
Adam D'Angelo Individual .4%
Chris Hughes Individual .4%
Matt Cohler Individual .4%
Jeff Rothschild Individual .4%
Owen Van Natta Individual .4%
T. Rowe Price Group, Inc. Corporate .25%
Reid Hoffman Individual .25%
Mark Pincus Individual .25%
Interpublic Group of Companies, Inc. Corporate .2%
Samwer Family Family .1%
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General Atlantic LLC Private Equity .1%
Ezra Callahan Individual .08%
Kleiner, Perkins, Caufield & Byers
(KPCB)
Private Equity .073%
Cameron Winklevoss Individual .022%
Tyler Winklevoss Individual .022%
Divya Narendra Individual .022%
GSV Capital Corp. Venture Capital 0.01%
Secondary Market Investors

INDUSTRY INFORMATION
Industry Codes
PICS: 900312
NAICS: 516110
SIC: 7375
PrivCo Industries (Sector > Industry > Sub-Industry)
Internet > Internet Services > Social Media
The PrivCo Industry Classification System (PICS) is our proprietary, modernized industry classification system, geared especially toward privately-held companies and including
newer emerging sub-industries that are not reflected in other outdated industry classification systems, such as SIC and NAICS.

COMPETITORS & COMPARABLES
Competitors
Baidu
Google Inc.
LinkedIn Corporation
Twitter Inc.
Gowalla, Inc.
Myspace LLC
Public Comparables
Google Inc.
LinkedIn Corporation
Netflix, Inc.
Yahoo! Inc.
Yelp, Inc.
Amazon.com, Inc.
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CHARTS, FINANCIALS, & STATISTICS
Income Statement 2011 2010 2009 2008 2007
Advertising Revenues $3.20 BN $1.90 BN $764.00 MM
Revenues from Virtual Goods and
Other Fees
$557.00 MM $106.00 MM $13.00 MM
Revenues $3.70 BN $2.00 BN $777.00 MM $272.00 MM $153.00 MM
Cost of Goods Sold (Cost of Sales) $223.00 MM $493.00 MM $860.00 MM
Marketing/Advertising Expense $115.00 MM $184.00 MM $427.00 MM
Research & Development Expense $87.00 MM $144.00 MM $388.00 MM
Selling, General & Administrative
Expenses
$90.00 MM $121.00 MM $280.00 MM
Total Costs & Expenses $262.00 MM $1.00 BN $1.80 BN
Operating Income (Loss) $1.80 BN $1.00 BN $262.00 MM ($55.00 MM) ($124.00 MM)
Net Income (Loss) $1.00 BN $606.00 MM $229.00 MM ($56.00 MM) ($138.00 MM)
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CHARTS, FINANCIALS, & STATISTICS
Balance Sheet 2011 2010 2009 2008 2007
Cash and Cash
Equivalents
$3.90 BN $1.80 BN $633.00 MM $297.00 MM $305.00 MM
Total Assets $6.30 BN $3.00 BN $1.10 BN $505.00 MM $448.00 MM
Total Liabilities $1.40 BN $828.00 MM $241.00 MM $170.00 MM $174.00 MM
Stockholders Equity $4.90 BN $2.20 BN $868.00 MM $335.00 MM $273.00 MM
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CHARTS, FINANCIALS, & STATISTICS
Cash Flow Statement 2011 2010 2009
Cash Flow From Operating Activities $1.50 BN $698.00 MM $155.00 MM
Cash Flow From Investing Activities ($3.00 BN) ($324.00 MM) ($62.00 MM)
Cash Flow From Financing Activities $1.20 BN $781.00 MM $243.00 MM
Total Cash Flow (Net Change in Cash) ($273.00 MM) $1.20 BN $336.00 MM
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CHARTS, FINANCIALS, & STATISTICS
Employee Figures 2010 2009 2008 2007 2006 2005 2004
Total Employees 1,860 910 850 450 150 15 7
Productivity
(Revenue /
Employee)
$1.10 MM $853,846 $320,000 $340,000
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CHARTS, FINANCIALS, & STATISTICS
User Metrics
(MAUs)
2010 Q3 2010 Q2 2010 Q1 2009 Q4 2009 Q3 2009 Q2 2009 Q1
MAUs (US &
Canada)
144,000,000 137,000,000 130,000,000 112,000,000 99,000,000 81,000,000 68,000,000
MAUs (Europe) 167,000,000 151,000,000 138,000,000 117,000,000 101,000,000 85,000,000 71,000,000
MAUs (Asia) 113,000,000 96,000,000 81,000,000 62,000,000 48,000,000 32,000,000 22,000,000
MAUs (Rest of
World)
126,000,000 98,000,000 83,000,000 69,000,000 57,000,000 44,000,000 35,000,000
Total (Worldwide)
MAUs
550,000,000 482,000,000 431,000,000 360,000,000 305,000,000 242,000,000 197,000,000
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CHARTS, FINANCIALS, & STATISTICS
Secondary Market
Transactions
1/11/12 1/10/12 1/7/12 1/11/11 1/10/11 1/7/11 1/6/11
Stock Price $33.00 $34.00 $33.00 $55.00 $35.00 $40.00 $55.00
Implied Company
Valuation
$77.70 BN $80.00 BN $77.70 BN $129.40 BN $82.40 BN $94.10 BN $129.40 BN
Share Class Common Common Common Common Common Common Common
Shares
Outstanding
1
2,353,500,000 2,353,500,000 2,353,500,000 2,353,500,000 2,353,500,000 2,353,500,000 2,353,500,000
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CHARTS, FINANCIALS, & STATISTICS
Quarterly Income
Statement
2011 Q3 2011 Q2 2011 Q1 2010 Q4 2010 Q3 2010 Q2 2010 Q1
Quarterly Ad
Revenue
$798.00 MM $776.00 MM $637.00 MM $655.00 MM $450.00 MM $424.00 MM $340.00 MM
Quarterly Fee
Revenue (FB
Credits, etc.)
$156.00 MM $119.00 MM $94.00 MM $76.00 MM $17.00 MM $8.00 MM $5.00 MM
Total Quarterly
Revenue
$954.00 MM $895.00 MM $731.00 MM $731.00 MM $467.00 MM $431.00 MM $345.00 MM
Quarterly Cost of
Revenue
$236.00 MM $210.00 MM $167.00 MM $150.00 MM $131.00 MM $111.00 MM $100.00 MM
Quarterly Marketing
and Sales
$124.00 MM $103.00 MM $68.00 MM $59.00 MM $45.00 MM $44.00 MM $36.00 MM
Quarterly R&D $108.00 MM $99.00 MM $57.00 MM $45.00 MM $41.00 MM $32.00 MM $25.00 MM
Quarterly G&A $72.00 MM $76.00 MM $51.00 MM $40.00 MM $34.00 MM $26.00 MM $22.00 MM
Total Quarterly
Costs & Expenses
$540.00 MM $488.00 MM $343.00 MM $294.00 MM $251.00 MM $213.00 MM $183.00 MM
Quarterly Operating
Income
$414.00 MM $407.00 MM $388.00 MM $437.00 MM $216.00 MM $218.00 MM $162.00 MM
Quarterly Net
Income
$227.00 MM $240.00 MM $233.00 MM $251.00 MM $131.00 MM $129.00 MM $95.00 MM
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CHARTS, FINANCIALS, & STATISTICS
User Metrics
(DAUs)
2010 Q3 2010 Q2 2010 Q1 2009 Q4 2009 Q3 2009 Q2 2009 Q1
DAUs (US &
Canada)
92,000,000 85,000,000 82,000,000 64,000,000 53,000,000 40,000,000 35,000,000
DAUs (Europe) 94,000,000 85,000,000 79,000,000 63,000,000 50,000,000 39,000,000 35,000,000
DAUs (Asia) 54,000,000 45,000,000 39,000,000 29,000,000 20,000,000 13,000,000 9,000,000
DAUs (Rest of
World)
54,000,000 42,000,000 35,000,000 29,000,000 22,000,000 16,000,000 14,000,000
Total (Worldwide)
DAUs
293,000,000 257,000,000 234,000,000 185,000,000 144,000,000 108,000,000 92,000,000
Financial Notes:
1 Fully diluted shares outstanding
2 year end 2011
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CHARTS, FINANCIALS, & STATISTICS
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PUBLIC/ PRIVATE HISTORY (PPH)
Many private companies were once public or have attempted to go public in the past. Since mapping a private
company's Public/Private History (PPH) can often be complicated and take time, we've created PrivCo's Public/Private
History (PPH) Table to assist.
Date Deal Type Action Resulting
Status
Valuation Price Public Ticker
06/2012 IPO Exploring Private
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MERGERS & ACQUISITIONS
PrivCo's M&A Activity table for Facebook, Inc. displays the mergers and acquisitions involving Facebook, Inc., for
example if Facebook, Inc. acquired or was acquired by another entity, any leveraged buyout (LBO), etc.
Date Target Buyer Deal Type Price Status
06/2004 Facebook, Inc. Undisclosed New
York Financier
Acquisition $10,000,000 Bid Submitted
07/2004 Facebook, Inc.
1
Facebook, Inc. Acquisition Unspecified Completed
07/2004 Facebook, Inc.
2
Friendster Acquisition $10,000,000 Bid Submitted
02/2005 Facebook, Inc. Washington Post
Company
Minority Stake
Purchase
$6,000,000 Bid Submitted
03/2005 Facebook, Inc. Viacom, Inc. Acquisition $75,000,000 Bid Submitted
04/2005 Facebook, Inc.
3
MySpace, Inc. Acquisition Unspecified In Talks
08/2005 Facebook.com
Domain Name
Facebook, Inc. Acquisition $200,000 Completed
08/2005 Facebook, Inc. NBC Universal,
Inc.
Acquisition
Minority Stake
Purchase
Unspecified In Talks
01/2006 Facebook, Inc. News Corporation Acquisition Unspecified In Talks
02/2006 Facebook, Inc.
4
Viacom, Inc. Acquisition $1,450,000,000 Bid Submitted
03/2006 Facebook, Inc. Viacom, Inc. Acquisition Unspecified Bid Submitted
06/2006 Facebook, Inc. Yahoo! Inc. Acquisition $1,000,000,000 Bid Submitted
07/2006 Facebook, Inc.
5
Yahoo! Inc. Acquisition $850,000,000 Bid Submitted
09/2006 Facebook, Inc. Yahoo! Inc. Acquisition $1,010,000,000 In Talks
07/2007 Parakey Facebook, Inc. Acquisition Unspecified Completed
10/2007 Facebook, Inc.
6
Microsoft
Corporation
Acquisition $15,000,000,000 In Talks
06/2008 ConnectU Facebook, Inc. Acquisition $31,000,000 Completed
11/2008 Twitter Inc.
7
Facebook, Inc. Acquisition $550,000,000 Bid Submitted
05/2009 Facebook, Inc.
8
Unspecified Minority Stake
Purchase
$200,000,000 Completed
08/2009 FriendFeed
9
Facebook, Inc. Acquisition $47,500,000 Completed
11/2009 Facebook, Inc.
10
Elevation Partners Acquisition $90,000,000 Completed
02/2010 Octazen Solutions Facebook, Inc. Acquisition Unspecified Completed
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04/2010 Divvyshot, Inc.
11
Facebook, Inc. Acquisition Unspecified Completed
05/2010 ShareGrove
12
Facebook, Inc. Acquisition Unspecified Completed
06/2010 Facebook, Inc.
13
Elevation Partners Acquisition
Minority Stake
Purchase
$120,000,000 Completed
07/2010 Hot Potato
14
Facebook, Inc. Acquisition $10,000,000 Completed
08/2010 Friendster
Patents
15
Facebook, Inc. Acquisition $40,000,000 Completed
08/2010 Chai Labs Facebook, Inc. Acquisition $10,000,000 Completed
09/2010 Nextstop
16
Facebook, Inc. Acquisition $2,500,000 Completed
10/2010 Zenbe Mail
Intellectual
Property Rights
17
Facebook, Inc. Acquisition Unspecified Completed
10/2010 Drop.io Facebook, Inc. Acquisition $10,000,000 Completed
10/2010 Twitter Inc.
18
Facebook, Inc. Acquisition $2,000,000,000 Bid Submitted
11/2010 FB.com & Other
Domain Names
19
Facebook, Inc. Acquisition $8,500,000 Completed
01/2011 Rel8tion Facebook, Inc. Acquisition Unspecified Completed
03/2011 Snaptu, Ltd. Facebook, Inc. Acquisition $65,000,000 Completed
03/2011 Beluga Inc. Facebook, Inc. Acquisition $12,000,000 Completed
04/2011 Daytum, Inc.
20
Facebook, Inc. Acquisition $1,500,000 Completed
04/2011 Skype S.a.r.l
21
Facebook, Inc. Acquisition Unspecified Canceled
06/2011 Madebysofa
Holding BV (aka
Sofa)
Facebook, Inc. Acq-Hire
Acquisition
Unspecified Completed
08/2011 Pushpop Press
22
Facebook, Inc. Acquisition Unspecified Completed
10/2011 Friend.ly Facebook, Inc. Acquisition Unspecified Completed
11/09/2011 Strobe Facebook, Inc. Acq-Hire
Acquisition
Unspecified Completed
11/16/2011 MailRank
23
Facebook, Inc. Acq-Hire
Acquisition
$1,000,000 Completed
12/02/2011 Gowalla, Inc.
24
Facebook, Inc. Acq-Hire
Acquisition
$40,000,000 Completed
12/28/2011 Quorus Inc. Facebook, Inc. Acq-Hire
Acquisition
Unspecified Completed
Mergers & Acquisitions Notes:
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1 In July 2004, Zuckerberg incorporated TheFacebook.com, a new company, in Delaware and acquired TheFacebook, LLC
(Florida) in order to redistribute shares and cut out co-founder Eduardo Saverin. Please refer to PrivCo's Detailed Business
Description narrative on Facebook, Inc. for more details.
2 Facebook rejected the $10 million takeover bid from Friendster.
3 A few months before MySpace was acquired by News Corp., MySpace CEO Chris DeWolfe had met with Zuckerberg, Parker,
and Cohler to discuss a potential acquisition.
4 Viacom bid to acquire Facebook at a proposed deal value of around $1.45 Billion with a cash proponent of $800 million.
5 After Yahoo, Inc.'s 2Q 2006 Earnings were reported, the company reduced its $1 Billion cash acquisition offer to $850 million.
Facebook rejected the offer.
6 Microsoft attempted to acquire a stake in Facebook at a $15 billion valuation with the option to purchase and additional 5% every
six months. Although Microsoft ended up investing in Facebook (please see PrivCo's Funding Table on Facebook), the option
was not included in the deal.
7 Facebook reportedly offered an estimated $500 million in stock and $50 million in cash to acquire Twitter. The deal never came
to fruition.
8 Shares were acquired through Facebook employee stock sales.
9 Facebook acquired FriendFeed for $15 million in cash and $32.5 million in Facebook stock. FriendFeed co-founder Bret Taylor
would later become Facebook's chief technology officer.
10 Elevation Partners acquired roughly 1% of Facebook by purchasing $90 million worth of the company's stock on the secondary
market at roughly $20/share.
11 Divvyshot's staff, including founder Sam Odio, would join Facebook's team to work on Facebook Photos.
12 Upon the acquisition's close, Facebook absorbed ShareGrove's assets and employees and subsequently shut down
ShareGrove's operations.
13 Elevation Partners purchased 5 million Facebook shares in the secondary market, raising the firm's total stake in Facebook to 7.5
million shares or around 1.5% ownership.
14 Hot Potato founder Justin Shaffer would later improve Facebook Groups and help launch the Facebook Places product.
15 Facebook acquired seven Friendster patents and 11 pending patent applications in exchange for advertising, profit sharing for
virtual goods, and cash in a deal that was valued at $40 million. Sources indicate that Facebook may have acquired the patents
to help prevent future IP violation claims.
16 Facebook's acquisition of Nexstop was notably fueled by the absorption of it's talent. Nextstop co-founders and former Google
employees Adrian Graham (helped create Google Groups and Picasa) and Carl Sjogreen (helped create Google Calendar)
became part of the Facebook team.
17 In addition to acquiring intellectual property from Zenbe, Inc. for its Zenbe Mail product, Facebook also brought the three
engineers working on the project at Zenbe onboard the Facebook team. Zenbe shut down its Zenbe Mail product operations on
October 8, 2010.
18 Facebook's $2 Billion bid to acquire Twitter was combated by Google's $10 Billion bid, both of which were turned down.
19 Facebook purchased a couple of domain names from the American Farm Bureau, including FB.com. FB.com is now used
internally by Facebook employees.
20 Ryan Case and Nicholas Felton will be joining the product design team at Facebook. Facebook acquired Daytum primarily to hire
the company's two founding employees, Nicholas Felton and Ryan Case.
21 Skype, which pulled it's IPO in 2010, was also reportedly in talks with Google for potential acquisition opportunities (eventually
was acquired by Microsoft).
22 Pushpop founders Mike Matas and Kimon Tsinteris joined Facebook upon the closing of the acquisition.
23 MailRank Co-Founders Bethanye McKinney Blount and Bryan O'Sullivan joined Facebook's engineering team.
24 Cash and stock compensation was paid and/or guaranteed to GoWalla's founders and employees, although GoWalla's web
application was not directly acquired or used by Facebook. Most of Gowalla's employees, including founder Josh Williams, to
move to Facebook's offices in Palo Alto, at first to focus on developing Facebook's Timeline Feature. Deal value/price is PrivCo
estimate of the total cash and stock compensation for employment guarantees made to GoWalla's founders and employees.
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FUNDING ACTIVITY
PrivCo's VC/Funding Activity table for Facebook, Inc. displays the venture capital rounds, angel investments, debt or
other funding raised by Facebook, Inc..
Date Investor Round Investor Type
06/2004 Peter Thiel
1
Seed Angel / Individual
Total Round Seed $500,000
08/2004 Western Technology
Investment
Debt Venture Capital
Total Round Debt $300,000
10/2004 Western Technology
Investment
Debt Venture Capital
Total Round Debt $300,000
04/2005 Jim Breyer
2
A Angel / Individual
04/2005 Western Technology
Investment
A Private Equity
04/2005 Mark Pincus A Angel / Individual
04/2005 Reid Hoffman A Angel / Individual
04/2005 Accel Partners A Venture Capital
Total Round A $13,725,000
04/2006 MeriTech Capital Partners B Venture Capital
04/2006 Accel Partners B Venture Capital
04/2006 Peter Thiel B Angel / Individual
04/2006 Greylock Partners B Venture Capital
Total Round B $27,500,500
05/2007 TriplePoint Capital Debt Venture Capital
Total Round Debt $30,000,000
10/2007 Li Ka-Shing
3
C Angel / Individual
10/2007 Microsoft Corporation
4
C Corporate
10/2007 Samwer Family C Family
Total Round C $372,000,000
03/2008 TriplePoint Capital Debt Venture Capital
Total Round Debt $100,000,000
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05/2009 Digital Sky Technologies
5
D Private Equity
Total Round D $200,000,000
01/16/2011 Goldman Sachs
International Clients
E
01/16/2011 Goldman Sachs Private
Equity
E Private Equity
Total Round E $1,500,000,000
03/31/2011 T. Rowe Price Group, Inc. Other Corporate
Total Round Other $190,500,000
06/2011 GSV Capital Corp. Other Venture Capital
Total Round Other $6,600,000
Total of Funding Shown Above $2,441,425,500
Funding Notes:
1 Thiel joined the board of directors.
2 Jim Breyer joined the board of directors.
3 Li Ka-Shing's investment of $120 million was actually made through two separate $60 million rounds under the same terms.
4 Microsoft purchased a 1.6% company ownership stake & some exclusive ad rights. The $15 billion valuation may be skewed up
in part by a simultaneous advertising contract and contract stipulation that Facebook would be required to notify Microsoft if it
ever considered a future offer from Google. As part of the deal, Facebook also agreed to let Microsoft purchase an additional
$260 million worth of shares.
5 Purchase of preferred stock for possible 1.96% ownership. But this investment may affect the valuation of the common stock as
well. Additionally, DST bought another $100 million worth of common stock from existing employees and investors, raising it's
stake to 3.6%
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ROUND: SEED
Company Facebook, Inc.
Series Seed
Funding Date 06/2004
Stage of Development Seed
Total Funding Amount $500,000
Valuation $4,900,000
Stake Acquired 10.20 %
Type of Stock Convertible Debt
Debt
Board Seats Demanded 1:3
Liquidation Preferred No
Capped Participating
Preferred
No
Anti-Dilution Protection No
Redemption at Investors
Option
No
Cumulative Dividends No
Investor Name Investor Type Investment Date Stake Acquired
Peter Thiel
1
Angel / Individual $500,000 06/2004 10.2 %
1 Thiel joined the board of directors.
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DEBT INVESTMENT
Company Facebook, Inc.
Series Debt
Funding Date 08/2004
Stage of Development Seed
Total Funding Amount $300,000
Stake Acquired 0.00 %
Type of Stock Debt
Board Seats Demanded Unspecified
Liquidation Preferred No
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
Western Technology
Investment
Venture Capital $300,000 08/2004 0 %
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DEBT INVESTMENT
Company Facebook, Inc.
Series Debt
Funding Date 10/2004
Stage of Development Early Stage
Total Funding Amount $300,000
Stake Acquired 0.00 %
Type of Stock Line of Credit
Warrant
Board Seats Demanded Unspecified
Liquidation Preferred Unspecified
Capped Participating
Preferred
No
Anti-Dilution Protection No
Redemption at Investors
Option
No
Cumulative Dividends No
Investor Name Investor Type Investment Date Stake Acquired
Western Technology
Investment
Venture Capital $300,000 10/2004 0 %
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ROUND: A
Company Facebook, Inc.
Series A
Funding Date 04/2005
Stage of Development Early Stage
Total Funding Amount $13,725,000
Valuation $97,750,000
Stake Acquired 11.49 %
Type of Stock Preferred Equity
Board Seats Demanded 1:4
Liquidation Preferred Yes
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
Jim Breyer
1
Angel / Individual $1,000,000 04/2005 0.8 %
Western Technology
Investment
Private Equity $25,000 04/2005 0.025 %
Mark Pincus Angel / Individual $40,000 04/2005 0.25 %
Reid Hoffman Angel / Individual $40,000 04/2005 0.25 %
Accel Partners Venture Capital $12,700,000 04/2005 10.16 %
1 Jim Breyer joined the board of directors.
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ROUND: B
Company Facebook, Inc.
Series B
Funding Date 04/2006
Stage of Development Mid Stage / Expansion
Total Funding Amount $27,500,500
Valuation $525,000,000
Type of Stock Equity
Board Seats Demanded Unspecified
Liquidation Preferred Yes
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
MeriTech Capital
Partners
Venture Capital 04/2006
Accel Partners Venture Capital 04/2006
Peter Thiel Angel / Individual 04/2006
Greylock Partners Venture Capital 04/2006
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DEBT INVESTMENT
Company Facebook, Inc.
Series Debt
Funding Date 05/2007
Total Funding Amount $30,000,000
Stake Acquired 0.00 %
Type of Stock Line of Credit
Board Seats Demanded Unspecified
Liquidation Preferred Unspecified
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
TriplePoint Capital Venture Capital $30,000,000 05/2007 0 %
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ROUND: C
Company Facebook, Inc.
Series C
Funding Date 10/2007
Stage of Development Mid Stage / Expansion
Total Funding Amount $372,000,000
Valuation $15,000,000,000
Stake Acquired 2.40 %
Type of Stock Preferred Equity
Board Seats Demanded Unspecified
Liquidation Preferred Yes
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
Li Ka-Shing
1
Angel / Individual $120,000,000 10/2007 0.8 %
Microsoft Corporation
2
Corporate $247,000,000 10/2007 1.6 %
Samwer Family Family $15,000,000 10/2007 0.1 %
1 Li Ka-Shing's investment of $120 million was actually made through two separate $60 million rounds under the same terms.
2 Microsoft purchased a 1.6% company ownership stake & some exclusive ad rights. The $15 billion valuation may be skewed up
in part by a simultaneous advertising contract and contract stipulation that Facebook would be required to notify Microsoft if it
ever considered a future offer from Google. As part of the deal, Facebook also agreed to let Microsoft purchase an additional
$260 million worth of shares.
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DEBT INVESTMENT
Company Facebook, Inc.
Series Debt
Funding Date 03/2008
Stage of Development Mid Stage / Expansion
Total Funding Amount $100,000,000
Stake Acquired 0.00 %
Type of Stock Line of Credit
Board Seats Demanded Unspecified
Liquidation Preferred No
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
TriplePoint Capital Venture Capital $100,000,000 03/2008 0 %
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ROUND: D
Company Facebook, Inc.
Series D
Funding Date 05/2009
Stage of Development Mid Stage / Expansion
Total Funding Amount $200,000,000
Valuation $10,000,000,000
Type of Stock Preferred Equity
Board Seats Demanded Unspecified
Liquidation Preferred Yes
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
Digital Sky
Technologies
1
Private Equity $200,000,000 05/2009
1 Purchase of preferred stock for possible 1.96% ownership. But this investment may affect the valuation of the common stock as
well. Additionally, DST bought another $100 million worth of common stock from existing employees and investors, raising it's
stake to 3.6%
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ROUND: E
Company Facebook, Inc.
Series E
Funding Date 01/16/2011
Stage of Development Late Stage / Mezzanine
Total Funding Amount $1,500,000,000
Valuation $50,000,000,000
Stake Acquired 3 %
Type of Stock Mezzanine Financing
Board Seats Demanded Unspecified
Liquidation Preferred No
Capped Participating
Preferred
No
Anti-Dilution Protection No
Redemption at Investors
Option
No
Cumulative Dividends No
Investor Name Investor Type Investment Date Stake Acquired
Goldman Sachs
International Clients
$1,000,000,000 01/16/2011 2 %
Goldman Sachs
Private Equity
Private Equity $500,000,000 01/16/2011 1 %
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ROUND: OTHER
Company Facebook, Inc.
Series Other
Funding Date 03/31/2011
Stage of Development Late Stage / Mezzanine
Total Funding Amount $190,500,000
Valuation $62,500,000
Stake Acquired 0.30 %
Type of Stock Equity
Board Seats Demanded 0:5
Liquidation Preferred Unspecified
Capped Participating
Preferred
Unspecified
Anti-Dilution Protection Unspecified
Redemption at Investors
Option
Unspecified
Cumulative Dividends Unspecified
Investor Name Investor Type Investment Date Stake Acquired
T. Rowe Price Group,
Inc.
Corporate $190,500,000 03/31/2011 0.3 %
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ROUND: OTHER
Company Facebook, Inc.
Series Other
Funding Date 06/2011
Stage of Development Late Stage / Mezzanine
Total Funding Amount $6,600,000
Valuation $73,200,000,000
Stake Acquired 0.01 %
Type of Stock Equity
Board Seats Demanded 0:6
Liquidation Preferred Unspecified
Capped Participating
Preferred
No
Anti-Dilution Protection No
Redemption at Investors
Option
No
Cumulative Dividends No
Investor Name Investor Type Investment Date Stake Acquired
GSV Capital Corp. Venture Capital $6,600,000 06/2011 0.01 %
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DETAILED BUSINESS DESCRIPTION
Competitive Threat From Google+
In July 2011 Google launched a competing service, Google+ (aka Google Plus), with privacy features, including the ability
to separate friends and shared posts into separate circles. The launch proved to be the greatest competitive threat to date
to Facebook.
Google+ launched dramatically. According to PrivCo sources inside Google, Google+ passed 30 million registered users
as of August 8th, barely 5 weeks after its launch. Facebook sources tell PrivCo that management was caught offguard by
the rapid adoption of Google+. In mid-August 2011, Mark Zuckerberg ordered a "lock down" (Facebook's internal term for
requiring tech staff to work virtually all night, 7 days per work week until a new technology feature set is coded and goes
live). In the latest lockdown, sources told PrivCo that Facebook engineers coded features similar to those of Google+,
primarily those addressing long ignored privacy-related concerns.
Google+ Games, which was released on August 11, 2011, could also absorb a major source of Facebook
revenue. Google can do this by undercutting Facebook through lower fees. Developers for Google+ Games will initially
pay only 5% on revenues as opposed to the 30% that Facebook demands. This fee is forecasted to rise to about 20%.
Luring game developers onto the Google+ platform will directly affect Facebook's virtual good revenues and indirectly
affect advertising revenues as Internet gamers migrate to Google+ to follow their favorite games.
"Facebook opened the window for Google to step into by demanding such onerous terms from social games developers
on Facebook," says Sam Hamadeh, CEO at PrivCo. "These terms include abruptly demanding a 30% cut of developers'
revenues by requiring all payments to go through Facebook Credits. This has generated tremendous animosity in the
social games developer community. Facebook overreached, and now Google Games is well positioned to capitalize on
the opportunity by offering games developers vastly lower pricing terms, and no exclusivity and ownership of their own IP
(intellectual property)."
Despite Google's strategies to appeal to both game developers and social network users, Google+ user acquisition
slowed significantly following its Summer 2011 launch. In five weeks, the new social network lured in 30 million users, but
took another two months to rope in the next 10 million. During the Packers vs. Lions Thanksgiving 2011 football game,
Google+ was featured in a 90-second commercial. The commercial, which highlighted Google+'s "Circles" feature,
received mixed reactions. Some in the tech world considered the commercial desperate, noting that Facebook has never
hasd to air a commercial to gain new users.
Facebook Credits Usage Requirement Provided One-Time Jolt In 2010, Making Second Half 2011 Growth Rates
Increasingly Difficult
For the first half of 2011, Facebook achieved approximately 90% revenue growth over the first half of 2010. Despite the
impressive figure, this growth rate fell short of virtually all internal and external projections. In addition, this growth rate
was achieved by the Company in part due to a phasing in of requirements for game developers to use Facebook Credits
instead of their own virtual currencies. Facebook's mid-2010 introduction of Facebook Credits has contributed hundreds
of millions of dollars in new revenue. Because much of the 90% revenue growth resulted from $200 million in virtual
goods revenue, PrivCo expects that Facebook's revenue growth during the second half of 2011 will continue to slow.
Facebook's relatively flat user growth will put a ceiling on how much its revenues can grow for the second half of 2011.
Unless Facebook's revenue nearly doubles in the second half of 2011 over its first half 2011, there is no mathematical
probability that Facebook, Inc. will achieve the market's revenue expectations of greater than $4.5 billion in 2011
revenue.

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Facebook Revenues, Operations, and Corporate History
Facebook's Beginnings
In February 2004, co-founders Mark Zuckerberg, Dustin Moskovitz, Chris Hughes, and Eduardo Saverin launched
TheFacebook.com from a Harvard dorm room. Facebook has become a daily activity for many of its users as a way to
connect with "friends", virtually document their lives, and play games. In the process, Facebook has unloaded a
consistent stream of new features, including an extensive platform for developers to create applications for its site.
Facebook encourages users to share more information about themselves, and in numerous site updates has
questionably violated its users privacy rights. Through the information its users share, the analytics capabilities that
Facebook possesses provide significant opportunities for targeted advertising. However, these analytics created
significant privacy issues, which Facebook continues to address both in court and on its website.
2003: Pre-Facebook
Prior to founding Facebook, 20-year-old Mark Zuckerberg had extensive experience in technology. As a sophomore at
Harvard in September 2003, less than six months before launching Facebook, Zuckerberg developed Course Match.
Course Match was an internet software program that allowed Harvard students to pick classes based on who else had
already enrolled in them. The project caught on and hundreds of Harvard students used it. The following month, in
October 2003, Zuckerberg launched another program called FaceMash, which pulled Harvard students photos from
internal Harvard records and allowed users to select which of two displayed students was more attractive. The traffic
driven to FaceMash within a single day froze his laptop.
January-February 2004: Launch of TheFacebook.com
In January 2004, Mark Zuckerberg registered the domain name TheFacebook.com for $35 and began hosting the site for
$85 per month.
On February 4, 2004, TheFacebook.com went live and was restricted to users with a Harvard.edu e-mail address. At the
time, the user interface was relatively rudimentary and included basic functionality. A user could essentially do three
things: create a profile and upload a picture of themselves, search for other users on the site and request to add them as
friends, and poke other users. The poking feature displayed a message to other users that they had been poked by
another user and soon became a form of flirting.
Within a week of launching, Zuckerberg was accused of stealing the idea for The Facebook from Harvard seniors
Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra. The three seniors claimed to have contracted Zuckerberg
to build a similar website, The Harvard Connection, but Zuckerberg stalled its development in order to launch a competing
product.
By March 2004, TheFacebook.com had expanded access to include users with e-mail addresses from Stanford,
Columbia, and Yale.
Spring/Summer 2004: Palo Alto, Sean Parker, and Peter Thiel
In the spring of 2004, Napster co-founder Sean Parker came across TheFacebook.com and contacted Zuckerberg
to request a meeting. Shortly thereafter, Parker impulsively flew from Palo Alto to New York to bond over dinner with
the Harvard sophomore.
In June 2004, an unnamed New York financier offered to acquire Facebook for $10 million. Zuckerberg, who had
just turned 20, rejected the offer and moved operations for the four-month-old company to Palo Alto, California.
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Shortly after the move to Palo Alto, Zuckerberg ran into Sean Parker who had been forced out of Plaxo, Inc. around
that time. On top of being kicked out of the contact information management company of which he was co-founder,
Parker was stripped of nearly half his shares. Zuckerberg invited Parker to move into the four-bedroom sublet house hed
found on Craigslist.
Within the first few weeks in Palo Alto, Facebook had spent around $20,000 and financing became a priority.
Facebook had expanded membership to 30 college networks and as membership grew, so did the number of servers
needed to support it. One of Sean Parkers early and significant contributions to Facebook was setting up an introduction
with Reid Hoffman, a founder of both LinkedIn and PayPal. Hoffman set up a meeting with one of PayPals former
CEOs, Peter Thiel, who made a $500,000 debt-to-equity angel investment at a $4.9 million valuation (for complete
Funding information, please see PrivCos Funding Table for Facebook). Throughout this early financing, Parker was able
to help Zuckerberg maintain complete control of his company.
Fall 2004-Early 2005: Exponential Membership Growth & The Washington Post Company, Inc.
In August 2004, Facebook membership reached 200,000. Zuckerberg and Moskovitz decided not to return to Harvard in
September in order to focus solely on The Facebook. Sean Parker became the companys president. With the aid of
Thiels funding, Facebook integrated the Wall, which enabled users to write messages on one anothers profiles.
By the time membership reached 500,000 in October, it had become apparent that Facebook needed more money to
support growth. Through a Harvard classmate, Zuckerberg was introduced to Donald Graham, CEO of The Washington
Post Company, Inc. Grahams long-term focus strongly contrasted that of many Silicon Valley venture capitalists, and he
and Zuckerberg became close.
In March 2005, Viacom made an unsuccessful bid for a $75 million acquisition deal and around a dozen venture capital
firms had expressed interest in investing in Facebook (for more unsuccessful acquisition bids, please see PrivCos M&A
Table for Facebook). Mark Zuckerberg and Donald Grahams friendship had grown closer to financial fruition as The
Washington Post offered to purchase a 10% ownership stake in Facebook for $6 million. It appeared to be a done deal
until April Fools Day.
April Fools Day 2005: Accels Term Sheet Values Facebook at $80 million
Accel Partners Kevin Efrusy had heard about Facebook from a Stanford University grad student who was interning at
the venture capital firm. After a few failed attempts to get in touch with then president Sean Parker, Efrusy walked over to
Facebooks office and was pitched by Dustin Moskovitz and Matt Cohler. Four days later, on April 5, Efrusy returned
with a term sheet for a $10 million venture investment that valued the company at $80 million (please see PrivCos
VC/Funding Table for Facebook, Inc. for complete Funding Deal information).
That night, at dinner with Accels managing partner Jim Breyer, Zuckerberg disappeared and was found crying on the
floor of the mens room by Matt Cohler. Zuckerberg felt that he was betraying Graham by entertaining Accels funding
offer. The next morning, he called The Washington Post CEO to talk it over who advised him to go through with the Accel
deal and wished him luck.
In April of 2005, Facebook raised $12.7 million in venture capital from Accel Partners (see PrivCo Funding Table for
Facebook for deal details) as Series A Preferred Stock. The same month Facebook expanded to support more than 800
college networks.
Spring/Summer 2005: Post Series A Growth & Parkers Formal Exit
After the Series A funding injection, Facebook began hiring additional staff and integrating new features to its site. To
much of the young Facebook staffs dismay, Zuckerberg - at Accel Partners' urging - continued conducting recruiting
meetings with high profile Silicon Valley executives to convince them to join the company. In-house recruiter Robin Reed
took notice and confronted the 21-year-old CEO. Zuckerberg assured Reed that he and the venture capital backers did
not intend to sell Facebook or replace current staff, and Zuckerberg agreed to start seeing an executive coach. (One
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week after the confrontation, Zuckerberg called the entire staff together for Facebook's first of its regular "all-hands"
meetings).
In the last week of August 2005, Sean Parker was arrested on suspicion of cocaine possession while on a trip to North
Carolina. Parker was never formally charged and while Zuckerberg didnt see the arrest as a significant issue, investors
Jim Breyer and Peter Thiel convinced Zuckerberg that Parker should be forced to resign as Facebook's President.
Partner promptly resigned, though remained a significant shareholder in the company.
Also in August 2005, Facebook purchased a new domain, changing its URL name from thefacebook.com to
facebook.com.
Fall 2005: Extending Membership to High School & International Networks
In September 2005, Facebook scaled again to extend membership to high school students and yet again in October to
begin opening up to international users. The addition of underage and international users prompted an increase in
privacy protection concerns and resulted in the hiring of Chris Kelly as Chief Privacy Officer in September 2005. In an
April 2008 interview with the British publication Times Online, Kelly explained that:
There are really two London networks, one for under 18s and one for over 18s. An over 18 in the London network
cannot see the profile of an under 18 in the London network [Aside from privacy settings] we have systems that operate
behind the scenes to detect anomalous behavior, which we use for anti-spam and anti-phishing as well as against
inappropriate approaches to minors. For instance, a 45-year-old attempting to befriend a 14-year-old is a situation that
gets detected fairly quickly.
Regarding issues of privacy protection, Facebook has participated with organizations such as the National Center for
Missing and Exploited Children, International Association of Privacy Professionals, and WiredSafety.
Winter 2005-Early 2006: Continued Courting by Viacom
Among the suitors that continued to pursue Facebook, Viacom remained among the most persistent in late 2005. Viacom
CEO Tom Freston had continually tried and failed to woo Zuckerberg and Michael Wolf, president of Viacoms MTV
Networks, had also been keeping tabs on the young Facebook CEO. For the holidays, Wolf claimed he would be in the
San Francisco area with the Viacom corporate jet and asked Zuckerberg if he would like to ride back to New York with
him. Zuckerberg agreed, and, since Wolf actually was not in possession of Viacoms aircraft at the time, he flew to San
Francisco that morning and chartered a Gulfstream V (G5) for the ride back.
Wolf and Zuckerberg bonded over the flight and continued talks in the following months. In March 2006, Viacom
unsuccessfully offered to purchase Facebook in a deal valued around $1.45 billion, with $800 million in cash.
Spring 2006: Series B Funding Round & Continued Growth
On April 19, 2006 Facebook announced in a press release that it had secured $25 million in funding to develop new
features and improve security. Greylock Partners led the financing while Meritech Capital Partners and Facebooks
existing investors Accel Partners and Peter Thiel also participated. The figure later was reported to be $27.5 million
(please see PrivCos Funding Table on Facebook for complete information).
By May 2006, Facebook had expanded its user base once again to include work networks. The total number of active
users of Facebook.com was then around 8 million.
Summer/Fall 2006: Yahoo Bids $1 Billion & Open Registration
In June 2006, Yahoo submitted a bid to acquire Facebook for $1 billion cash yet after reporting second quarter earnings,
the company reduced its offer to $850 million and the deal was rejected. Prior to a drop in Yahoos stock price, it is
rumored that Zuckerberg had verbally agreed to sell. Yahoo again bid $1 billion in the fall but was rejected a second
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time.
In August 2006, Facebook struck an advertising deal with Microsofts MSN for banner ad syndication and profit sharing.
Microsoft would sell banner ads on Facebook.com, visible to Facebooks users within the United States, until 2011.
In September 2006, Facebook launched its News Feed feature and opened registration so that anyone with a valid e-mail
address could join the site. The Facebook.com active user base crossed the 10 million mark. Within the following year,
this figure grew to nearly 50 million.
2007: The Facebook Platform, Microsoft, & Restricted-Stock Units
In May 2007, Facebook launched the Marketplace application for classified listings and hosted an F8 event (Facebook's
annual event) to launch Facebook Platform, enabling programmers and developers to create and submit their own
applications. The Facebook Platform launched with 65 developer partners and over 85 applications.
In July 2007, Facebook acquired Parakey. Parakey was a Mountain View, California startup that had been working
towards developing a way for people to develop applications while on and offline.
By October 2007, Facebook had been in talks with both Microsoft and Google both interested in deals valuing
Facebook at $15 billion. Facebook accepted a $247 million investment from Microsoft at a $15 billion valuation a deal
that included an expansion of the two companies strategic relationship for banner ad syndication and profit sharing. This
enabled Microsoft to sell banner ads on Facebook appearing outside the United States as well as a clause requiring
Facebook to notify Microsoft in the event that they solicit acquisition bids from Google (for more information, please see
PrivCos Funding Table for Facebook). That same month, Facebook launched the Facebook Platform for mobile device.
In late 2007, Facebook changed its policies regarding stock option issuances to employees. This might have been a tactic
to prevent reaching the 500-shareholder mark, at which point companies are required to report financial information with
the SEC. The Facebook Board of Directors agreed to begin issuing restricted-stock units to employees, essentially
requiring the company to go public for these RSU holders to exercise and become shareholders.
By early 2008, Facebooks board of directors saw two new additions. Zuckerberg invited Netscape co-founder Marc
Andreessen and Washington Post Company Chairman Donald Graham to join the board. Although the two new board
members would bring trusted opinions, Zuckerberg maintained voting control of their seats.
Early 2008: ConnectU Settlement & COO Sheryl Sandberg
In February 2008, ConnectU reported receiving $65 million from Facebook in a settlement after suing the social network
for intellectual property and ConnectU's source code.
In early March 2009, Facebooks director of business development, Netanel Jacobsson, and developer Charlie Cheever
left the company. Some of the employees who had left have shared that it was due to Mark Zuckerbergs highly
demanding persona.
In March 2008, Facebook expanded its management team and brought Sheryl Sandberg on board to serve as Chief
Operations Officer. According to Zuckerberg, the company had no formal intention to bring on a COO prior to Sandberg's
hire. Prior to Facebook, Sandberg was VP of Global Online Sales and Operations at Google.
2008-2009: Debt Financing, Facebook Connect, & An Attempt to Acquire Twitter
On May 12, 2008, TriplePoint Capital announced that it had provided $100 million in debt financing to Facebook.
TriplePoint Capital had previously provided more than $30 million of debt financing to Facebook prior and had been the
sole provider of debt financing to a number of other high profile companies such as YouTube, Slide, and Adify (for more
funding information, please see PrivCos Funding Table for Facebook).
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In the financing deal, Facebook gave up no equity and intended to spend the capital on upgrading their infrastructure and
purchasing new servers. The $100 million in debt financing could have potentially purchased up to 50,000 servers, a
large upgrade from Facebooks estimated 10,000 that were currently in operation.
In May 2008, Zuckerberg unveiled Facebook Connect at its F8 event, allowing users to sign onto other Web sites, gaming
systems, and mobile devices with their Facebook account, which serves as a digital passport of sorts.
Over a span of a few weeks in October and November of 2008, Facebook was in talks with Twitter to acquire the
company. Facebook had allegedly bid to acquire Twitter for $500 million of its stock (at the $15 billion valuation it had
received prior) and a cash component. The deal, however, failed in part due to Twitters belief that Facebooks
valuation was inflated; the acquisition never happened.
Early 2009: Facebooks First Dedicated Data Center & The Need For Financing
In January 2009, Facebook moved into Digital Realty Trusts 1201 Comstock Street to respond to continued growth. In
addition to its first exclusive data center, Facebook occupied space at three other data centers in the United States:
Switch & Datas PAIX in Palo Alto, Terremarks NAP West in Santa Clara, and DuPont Fabros ACC4 in Ashburn,
Virginia.
In February 2009, Facebook joined the OpenID board and added the Like feature. By the end of February, Facebook
had reached 275 million active users worldwide, with 75 million international added in the prior three months, a 175%
overall increase since the prior year.
By March 2009, Facebook began trying to secure up to $100 million in debt financing in the form of multiple credit lines.
Its user base was growing at incredible rates and Facebook had become the largest photo-sharing site on the web,
creating a need for additional equipment to keep up with such massive storage needs. The debt financing was intended
to lease additional equipment, thus keeping up-front costs low and providing advantages compared to purchasing the
equipment in the face of technological development.
Reportedly, Facebook had considered a handful of large financial institutions during a credit crisis period for lenders, one
of which being their primary commercial bank, Bank of America. Facebooks credit line of $100 million from TriplePoint
Capital in May 2008 had expired a few months prior as the company had drawn the available funds down to $40 million.
TriplePoint Capital CEO Jim Labe stated that the two companies were in talks on whether TriplePoint would be able to
offer Facebook additional credit in the future.
Also in March 2009, Facebook announced that it would be handing Marketplace, a classifieds section of the site, over to
Oodle, which already operated MySpaces classifieds. The actual switch took place in December 2009.
Spring 2009: Resignation of Gideon Yu & DSTs $200 Million Investment
On March 31, 2009, Facebook announced the resignation of its Chief Financial Officer, Gideon Yu, but also announced it
was on track to increase its revenue by 70% in 2009. The company had also just achieved its fifth straight quarter of
being EBITDA positive, and believed it would be cash flow positive by 2010. However, some 70% of Facebooks
members were international users, many of which are from countries that posed no real potential for advertising revenue
in the near-term.
Although Facebook was soliciting investment offers, Chief Operating Officer Sheryl Sandberg noted on April 24, 2009 that
Facebook had sufficient funding to overcome the economic crisis:
We could not be doing better financially. We absolutely do not need to take money. We might take money but it
doesnt mean we need to.
Sandberg also stated that Facebook was in the process of integrating new forms of interactive advertising believed to
increase annual sales by more than 70%. Sandberg, who had previously worked as Chief of Staff for the Treasury
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Department under President Bill Clinton, also forecasted a positive cash flow for 2010.
In May 2009, Digital Sky Technologies made a $200 million investment for preferred stock at a $10 billion valuation. The
new funding from DST was likely necessary to cover the photo-sharing costs, which Facebook had encountered through
being the largest photo-sharing site on the web. In an effort to reduce these costs, a three-engineer crack team
orchestrated a more efficient, proprietary architecture in an initiative known as Haystack.
Also in May 2009, Facebook CEO Mark Zuckerberg rejected a $200 million round of venture capital that valued the
company at $8 billion. The rejection was seemingly due to the fact that potential investors wanted board seats rather than
the valuation amount. At this point, Zuckerberg controlled three seats on the five-seat board.
June 2009: New HQ & New CFO
By June 1, 2009, Facebook had finished moving into its new 150,000-square foot world headquarters in Palo Alto's
Stanford Research Center. From this new headquarters, the company launched Facebook Usernames in the same
month, enabling Facebook users to claim a unique user name and Facebook URL.
Also in June 2009, Facebook had told investors that annual revenues would reach $550 million and in late June 2009,
Facebook hired former Genentech CFO David Ebersman as its replacement for Gideon Yu as CFO. Ebersman started at
Facebook in September 2009.
Summer 2009: DST Gobbles Up Employee Shares & the Acquisition of FriendFeed
As of July 2009, Digital Sky Technologies began to offer $14.77 per share of employee share of common stock for up to
$100 million, valuing Facebook at $6.5 billion. At the time, SharesPost, a secondary market for the holdings, listed the
highest offer at $14.42/share, valuing the company at $5 billion. Although Facebook company executives did not qualify
for the stock purchase program; Facebook investors and employees received the opportunity to sell some of their stock to
Digital Sky Technologies, who would soon amass 3.5% ownership. The Facebook common stock sale program allowed
employees to sell up to 20% of their holdings.
In August 2009, Facebook acquired FriendFeed for $50 million (an estimated $15 million cash and $35 million in vested
stock worth roughly $32.5 million based on a $6.5 million for Facebook.) FriendFeed continued to operate independently.
Fall 2009: Cash Flow Positive & Bono Becomes a Shareholder
By the beginning of October 2009, Facebook had announced that it was free cash flow positive. One of the possible
reasons that Facebook was able to do so ahead of schedule is the use of self-serve advertising. A self-serve ad allows
an advertiser to pinpoint and target an exact demographic.
In November 2009, private equity firm Elevation Partners purchased around $90 million in Facebook common stock at
roughly $20/share on the secondary market. A $90 million stock purchase at $20/share would value the company at just
under $9 billion and give Elevation Partners a 1% stake. The firm would later purchase another $120 million worth of
Facebook stock on the secondary market in June 2010 (for more information, please see PrivCos M&A Table for
Facebook). Elevation Partners was co-founded by Bono who serves as the firms Managing Director.
December 2009: Privacy Backlash
In December 2009, Facebook made changes to its privacy policies, making a large portion of Facebook users profile
content public by default. Privacy advocates and swarms of Facebooks users swiftly objected and Facebook eventually
responded in Spring 2010 with a simplified version of the privacy settings.
2010: New Data Center
In January 2010, Facebook announced plans to build its first company-owned data center in Prineville, Oregon. The
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147,000-square-foot data center cost $175 million and was used to store and route information posted by Facebook
users. Facebook planned to use evaporative cooling technology to prevent its servers from overheating as opposed to
the use of expensive water-cooling towers that the company uses at its other data centers. During its first 12 months of
construction, the data center employed 200 workers. 35 employees worked at the data center thereafter. In order to help
lure Facebook to Prineville, incredibly kind property-tax incentives were offered.
January 2010: Looking to Facebook Payments for Growth
In late January 2010, Facebook began developing its payment operations team. Now, Facebooks payment system
centers around Facebook Credits. Developers are required to use Facebook Credits (as opposed to other virtual
currencies). Facebook charges a 30% fee on any transaction using Facebook credits. For 2010 alone, Facebook is
believed to have generated around $200 million from its payment system.
February 2010: Scoring a Key Patent & Grant of Tax Incentives
In February 2010, Facebook was awarded a major patent for Dynamically providing a news feed about a user of a social
network. The patent pertains to implicit actions that are stories about the actions of a users friends. The application
was submitted in 2006, before many other social networks had incorporated the feed as a major feature, potentially giving
Facebook legal leverage to force competing social networks to remove news feed functionality or pay a licensing fee to
Facebook for use of the patent (please see PrivCos Facebook Exhibits Table for diagrams from the patent).
Also in February of 2010, Facebook was granted $1.6 million in combined state and city tax incentives to open an office in
Austin, Texas. The new Austin office would lead to an additional 200 employees, on top of the 1,200 currently employed
by Facebook at the time.
March-April 2010: IPO on the Horizon & Acquisition of Divvyshot
By March 2010, Facebook CEO Mark Zuckerberg had publicly acknowledged the companys obligation to its
shareholders and employees to inevitably go public but noted that there would be no rush towards an IPO. Zuckerberg
was able to provide a partial exit option to shareholders longing for returns and had set up a dual-class voting structure to
insulate himself from public shareholders. Zuckerbergs tight management style and firm control of strategic decisions
has both led Facebook to its current successes and led to discussions of whether or not he will build a management team
that can challenge him.
In April 2010, Facebook acquired Divvyshot Inc., a start-up that developed a new way for people to share photos. Sam
Odio and the start-up's staff joined Facebook to work on Facebook Photos.
Spring 2010: Open Graph & Connecting to Everything You Care About
In Spring 2010, Facebook unveiled Open Graph. The Open Graph protocol enables the integration of Like and
Share on other websites. Whenever a user clicks a Like button on a web page, a connection is made between the
page and the user and the liked object appears in the Likes and Interests section of the users profile.
From Spring 2010 forward, Facebook began to spill onto other websites, enabling its users Like products or information
as well as to share information from pages they browse on their Facebook profiles. One of Facebooks chief
competitors, Twitter, had already begun allowing its users to log into Twitter from other websites with its @anywhere
feature. The move also brought Facebook into more direct competition with Google.
By integrating Share and Like buttons on other sites across the web, Facebook enabled itself to track users
preferences, in turn allowing the company to share such data with marketers and publishers.
In April 2009, Facebook added Community Pages, a new type of Facebook Page dedicated to a topic or experience that
is owned collectively by the community connected to it. Just like official Pages for businesses, organizations and public
figures, Community Pages allows its users connect with others who share similar interests and experiences. Community
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Pages was longed with a long-term goal to make each page a collection of shared knowledge on a topic.
While many of Facebooks users had decided to share information, such as likes and interests, the company noticed that
more than three times as many of its users had connected to Facebook Pages, such as those for bands, non-profits,
universities or anything else. As a result, the company linked these Facebook Pages to each corresponding users
profile as a connection, making the users profile visible to all others sharing the same Facebook Pages connection.
May 2010: Another Privacy Backlash, Declining Traffic in Key Markets
On May 26, 2010, Zuckerberg responded to user comments and concerns about privacy by announcing that Facebook
would introduce simpler and more powerful controls for sharing personal information. The new settings would
significantly simplify those that were previously unveiled (which included around 150 options) and any changes made to a
users settings would be applied retroactively to everything the user had published previously on their profile. Further,
Facebook gave users the option to turn off its instant personalization feature, which it had recently unveiled alongside
the Open Graph.
The first user declines took place in May 2010 with drops in North America, the United Kingdom, and Norway. According
to Inside Facebook Gold, Facebooks U.S. audience fell from 155.2 million to 149.4 million at that time. Continued growth
can be primarily attributed to developing countries such as Brazil, India, and Indonesia. Many Brazilian Facebook users
had already been active on Google's Orkut for several years prior to adopting a Facebook profile.
In June 2010, Facebook limited the information accessible by applications in Canada to public parts of a users profile
after an investigation by the Canadian Privacy Commissioner.
Summer 2010: Gaining Market Share & An Acq-hire Spree
Acquisition of Sharegrove
In late May 2010, Facebook announced the acquisition of Sharegrove, a start-up that utilized Facebook Connect to create
private chat groups and enable users to share links and media with their Facebook friends. Sharegrove closed up shop
on June 1, 2010 and its team was brought onboard at Facebook.
Strategic Partnership With MOL Global & Acquisition of Friendster Patents
On July 8, 2010, MOL Global announced a strategic partnership with Facebook that would make it easier and more
convenience for Facebook users in Asia to purchase virtual goods in online games and applications on Facebook.
Under the agreement, MOL Globals wholly-owned subsidiary MOL AccessPortal became a payment provider for
Facebook Credits, enabling Facebook members to buy Credits using MOLPoints on Facebook and on MOLs website,
MOL.com. The partnership would make the purchase of Facebook Credits more convenient in Asia, a region where
consumers relied more on offline prepaid cards than credit cards to purchase digital goods and services.
Aside from the Facebook Credits benefits from the partnership, Facebook likely struck the deal as a move to acquire
Friendsters portfolio of patents, which MOL Global was in possession of after acquiring Friendster in 2009. Facebook
acquired 7 patents and 11 pending patents from MOL Global in August 2010 for $40 million. The patents cover making
social network connections, sharing on a social network, etc. By gaining possession of the patents, Facebook could both
use them to defend against litigation or to move to attack smaller players that may gain market share in the social media
space.
Acquisition of Hot Potato
In July 2010, Facebook acquired Hot Potato, a Brooklyn-based social media start-up that offered check-in services for
places, events, and virtual events. Less than two months after the acquisition, Hot Potato closed down its operations and
its staff joined the Facebook team (for more M&A details, please see PrivCos M&A Table for Facebook).
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Beta Launch of Facebook Questions
On July 28, 2010, Facebook launched the beta version of Facebook Questions. Facebook Questions allowed Facebook
users to post and answer questions, a service that seemed to compete with Quora.com, which was launched by former
Facebook employees Adam DAngelo and Charlie Cheever.
Acquisition of Chai Labs
In August 2010, Facebook acquired Chai Labs, a Mountain View, California-based start-up that created content
management systems for publishers. Gokul Rajaram, who originally helped launch Google AdSense, founded Chai Labs
and the Chai Labs team joined the Facebook team (for more M&A details, please see PrivCos M&A Table for
Facebook).
Launch of Check-In Functionality Feature: Places
In August 2010, Facebook launched Places, a feature that allowed members to share their physical location from an
GPS-enabled mobile device application. Facebook Places was launched with the strictest privacy settings that the
company had unveiled in a long time with the default set so that only Facebook friends can see a users check-ins.
Places seemed to directly compete with location-based services companies Foursquare and Gowalla.
Acquisition of Nextstop
In September 2010, Facebook acquired online travel review site Nextstop. The acquisition appeared to be yet another
acq-hire as Nextstop closed down operations on September 1, 2010 and its co-founders were each high-profile Google
alums: Adrian Graham (helped launch Google Groups) and Carl Sjogreen (helped create Google Calendar) each joined
the Facebook team as part of the acquisition.
October 2010: The Social Network Movie
On October 1, 2010, The Social Network opened at the New York Film Festival. The film, which was written by Aaron
Sorkin and directed by David Fincher, is a Hollywood depiction of Zuckerberg and the founding of Facebook.
October 2010: Search Engine Deals With Microsoft and Yandex
On October 14, 2010, Microsoft and Facebook announced a partnership to improve Microsofts Bing search engines
results by utilizing Facebook users social connections. Four days later, on October 18, Facebook announced a similar
deal with Yandex, Russias largest search engine. The two search engines would have access to all of the public
information about a user and their Facebook friends.
Aside from integrating Facebooks instant personalization feature, which allows users to share information from a web
page on their Facebook account or Like an article or product on the page, Bing will also be displaying search results
based upon the activity of their Facebook friends.
Yandexs front page hosts a Facebook widget and the companys own instant messaging service Ya.Online informs its
users of new notifications on the networking website. In addition, Yandex now adds the data from Facebook into its blog
search index improving its international search and boosting new, recently created pages indexing. Specifically,
Facebook now provides Yandex with a syndication feed that gathers information about updates on its Pages and profiles
created to represent public figures, businesses or organizations.
October 2010: Application-Related Privacy Concerns
On October 6, 2010, Facebook released a control panel for application privacy settings, thus allowing users to decide
how much information they would like to share about themselves or their friends when using applications. The settings,
however, do not allow the user to see what information their friends have authorized to share about them.
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Facebook enables Apps to access users unique Facebook IDs, which could potentially be used to look up a user's real
name and the information the users display as public. Many of the applications on Facebook had been transmitting
Facebook IDs to advertising and data firms, some of which used the unique codes to build profiles of internet users by
tracking their online activities (until Spring 2010, Facebook had done the same).
U.S. Reps. Edward Markey (D., Mass.) and Joe Barton (R., Texas) wrote a letter to Zuckerberg shortly after the privacy
control panel release, stating their concerns in regards to user privacy and requesting Facebook respond with its plans for
a resolution.
November 2010: The future of communication is not email & NC Data Center
In November 2010, Facebook announced that it would begin rolling out a new messaging system within the following
months on an invite-only basis that would integrate e-mail, SMS, and Facebook messages into a single online application,
allowing users to use an @facebook.com address if they choose. Although many tech enthusiasts have already
dubbed it the Gmail killer, the product is modeled more after chat than email.
Also in November 2010, Facebook launched a new data center in North Carolina. The coal-powered data center would
create over 250 jobs during its 18-month construction phase and would then employ between 35 and 45 workers.
Facebook is likely to receive a generous set of tax incentives to help outweigh the data centers $450 million price tag.
November 2010: Sync With MySpace & Trademark of Face
News Corp.s MySpace was once the top social media site on the Internet but fell to Facebook in 2009and has since
continued its decline behind Facebooks growth. Since passing the torch, MySpace has begun rebranding itself as the
social entertainment leader by algorithmically suggesting music and games to its users based on their interests.
In August 2010, MySpace unveiled a sync feature, which allowed users to display their MySpace status on their
Facebook page. Then in November 2010, in an agreement with Facebook, MySpace began allowing users to sign up for
their site through an existing Facebook account and, in return, would begin to feature Facebooks Like button on its
own site.
Also in November 2010, the U.S. Patent And Trademark Office had agreed to grant Facebook a trademark for the word
Face.
December 2010: Facebooks New Profile Page
In December 2010, Facebook gave users the option to switch to a new profile page, which was rolled out to all Facebook
users in January 2011.
The new profile placed the user-edited fields front and center as if to suggest that users should fill out more information
about themselves. In addition to a new infinite scroll feature, which automatically updates a page with further
information by preventing the user from having to click more as they user reach the end of a form, the new profile
included:
A summary of who users are at the top of their profiles including where users live, work and grew up
A row of recently tagged photos
Room to highlight meaningful friendships such as teammates, co-workers or roommates as well as the ability to
tag friends in important life experiences
More types of favorite activities and interests
January 2011: Goldman's Special Purpose Vehicle
In December 2010, Goldman Sachs and Digital Sky Technologies came together to invest a combined $500 million in
Facebook at a $50 billion valuation. Further, Goldman unveiled its plans to work around the Securities and Exchanges
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Commissions 500-share-holder threshold reporting requirements. By creating a special purpose investment vehicle and
selling units to high net worth clients, Goldman intended to invest $1.5 billion into Facebook as if it were coming from a
single investor. For qualified investors that were interested in investing in the Delaware entity called FBDC Investors LP,
Goldman would charge a 4% placement fee and 5% of any investment profits, in addition to an annual servicing fee likely
to be in the ballpark of 2%.
In early January 2011, Goldman sent hand-delivered copies of a 101-page private placement memorandum to a select
group of its clients, providing a glimpse of Facebook's financials. According to unnamed individuals claiming to have
received a copy of the PPM, Facebook had earned $355 million in net income and $1.2 billion in revenue for the first nine
months of 2010. The documents disclosed that Facebook would cross the 500-shareholder mark in 2010 and therefore
would be required to report with the SEC by the end of April 2012. Investors in the deal would be required to hold onto
their shares until 2013.
Within a week of sending out the PPM and urging its top American clients to invest, Goldman bankers began breaking the
news that there would be no domestic investors in FBDC Investors LP. What was meant to be a quiet offering became a
public spectacle and the investment bank feared legal action for potential violation of U.S. security laws as private
placements are not legally allowed to be advertised or publicly solicited. Therefore, non-U.S. Goldman clients now have
the investment opportunity.
In either aspect, Goldman is a likely lead underwriter candidate for Facebooks eventual IPO and Facebook may be likely
to negotiate lower underwriting fees as a result of the media spotlight.
January 2011: Sharing Phone Numbers & Addresses With Mobile Accounts
In January 2011, Facebook announced in its Facebook Developers blog that it had disabled a feature that shared its
users phone numbers and addresses with third party applications. The feature had been created to allow users to, for
example, easily share their address and mobile phone number with a shopping site to streamline the checkout process, or
sign up to receive up-to-the-minute alerts on special deals directly to their mobile phones. Facebook announced plans to
re-enable the feature a few weeks later.
In late January 2011, Facebook acquired Seattle-based Rel8tion, a mobile advertising campaign service, which had been
founded only nine months prior. In a press release, Facebook stated that the deal was talent-based and CTO Bret Taylor
has noted that mobile will be the primary focus for the Facebook platform in 2011.
March 2011: Facebook Payments Subsidiary Officially Created
In March 2011, Facebook created an official subsidiary, Facebook Payments, Inc., to handle payments on its network and
operate Facebook Credits. The Facebook Payments subsidiary was incorporated under Florida state law.
March 2011: Acquisitions of Beluga and Snaptu
On March 2, 2011, Facebook acquired Beluga, a group messaging start-up that enabled its users to send instant
messages, photos, and locations to groups of people and across multiple platforms. The Beluga technology continued to
develop as part of a mobile group messaging initiative within Facebook. Beluga's standalone service was shut down,
signaling another acq-hire transaction by Facebook.
On March 20, 2011, Facebook acquired Snaptu, an Israeli start-up that creates Java-based mobile applications
accessible to people that dont own a smartphone. At the point of acquisition, Snaptus applications were compatible
with over 2,500 mobile devices. Snaptu was founded by Ran Makavy and Barak Naveh and had received venture capital
from Carmel Ventures and Sequoia Capital.
March 2011: Employee Terminated For Involvement in Insider Trading
In late May 2011, Facebook terminated Michael Brown, a corporate development manager at the company. Brown had
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been purchasing Facebooks stock through secondary market auctions, which Facebook had previously communicated
was insider trading and a terminable offense. Sources say that Brown had purchased the shares in September 2010.
Prior to joining Facebook, Michael Brown was a principal at Foundation Capital.
April 2011: Acquisition of Data Visualization Company Daytum
On April 27, 2011, Facebook acquired Daytum, a New York-based data visualization company. Daytums two team
members, Nicholas Felton and Ryan Case, joined the Facebook staff in Palo Alto, California. Daytum was founded in
2010 to create an intuitive tool for counting and communicating personal statistics.
April 2011: Facebook Announces Plans to Move Headquarters to Menlo Park, California
In April 2011, Facebook submitted a proposal for its new headquarters site to the Menlo Park, California city council.
(Menlo Park borders Palo Alto to the north.) The campus consists of two sites: East Campus, which totals nine buildings
and over 1 million square feet on 57 acres, and; West Campus, which sits on 22 acres. By 2017, Facebook plans to
employ up to 9,200 people at this location.
Facebook intends to construct tenant improvements to the East Campus buildings and occupy the buildings up to a
maximum of 3,600 employees pursuant to a prior City approval. Concurrent with the tenant improvements, Facebook is
applying for an amendment to existing land use approvals to eliminate the maximum employee cap and substitute a
vehicular trip cap. Facebook also proposes to enter into a Development Agreement with the City to create vested rights in
project approvals, address implementation of the proposed design and infrastructure improvements in the project area,
and specify benefits to the City. For the West Campus, Facebook does not intend to submit a development application at
this time. Rather, Facebook intends for the environmental review to study the maximum development potential for the site
consistent with the current M-2 (General Industrial) maximum Floor Area Ratio of 45 percent, but in excess of the
maximum 35-foot building height.
April 2011: T-Mobile Launches Bobsled Application Enabling Free Calls Through Facebook
In mid-April 2011, T-Mobile released Bobsled, an application that enables people to make free voice calls to their
Facebook friends who are on Facebook chat and leave both public and private voice messages as wall posts.
May 2011: Facebook Re-Enters China After Ban in 2009
In May 2011, Facebook announced plans to launch in China and abide by Chinese law. Since being banned in 2009,
Chinese social media site Renren has announced plans to go public in the U.S. at a $4 billion valuation. To properly
comply with Chinese law, Facebook plans to partner with a Chinese search engine, most likely Baidu, which will enforce
proper censorship and compliance with Chinese laws.
May 2011: Facebook Includes Pages in Photo Tags
In May 2011, Facebook included the ability to tag Facebook Pages in photos. Facebook Pages are typically reserved for
celebrities, companies, and brands. By enabling users to tag Pages in their own photo albums, a Page owners brand
gains the opportunity to spread throughout that individuals social network.
May 2011: Facebook Begins Hackamonth Program
In an effort to keep talented employees engaged, Facebook created an internal program known as Hackamonth.
Hackamonth enables any engineer within the company who has been on the same team for more than on year to transfer
to a different team or project within the company for one month, at the end of which, the engineer is able to decide
whether to stay on the new team or return to his former position.
May 2011: Release of the Send Button
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In May 2011, Facebook released the Send button. While similar in appearance and placement to the Like button, the
Send button enables users to send a web page or Facebook Page to a friend. The functionality also includes the ability to
Send items to external email addresses. In a nutshell, Send provides a Facebook user with the ability to share something
with a specific recipient or group of recipients rather than their entire Friend List.
May 2011: Facebook Scores Digital Media Tagging Patent
In May 2011, Facebook obtained a patent for the method that the social networking site enables users to tag specific
sections within a piece of digital media, connecting it to another. The patent is aptly named Tagging digital media and
was filed nearly five years prior.
May 2011: Energy Future Holdings EVP to Run Facebooks Washington Office
In May 2011, Facebook hired Joel Kaplan to run its office in Washington, D.C. Kaplan had previously served as an
executive vice president at Energy Future Holdings where he was in charge of the companys public policy and external
affairs, and was George W. Bushs deputy chief of staff prior.
Facebook also announced the hiring of Myriah Jordan, who formerly served as general counsel to Senator Richard Burr,
Republican of North Carolina.
Other Facebook team members with backgrounds in Washington include COO Sheryl Sandberg, former chief of staff to a
Treasury secretary during the Clinton administration, and Ted Ullyot, former clerk for Supreme Court Justice Antonin
Scalia.
May 2011: Bing Integrates Social Variable in Search Results with Facebook
In May 2011, Microsofts search engine, Bing, began to integrate socially influenced search results. When a user is
logged into both Bing and Facebook, the search algorithms on Bing began to take into account items that the users
friends had liked or shared on Facebook.
May 2011: Facebook Stock Sells at $87.5 Billion Valuation on SharesPost
On May 26
th
, 2011, 100,000 shares of Facebooks Class B Common Stock sold at a $35.00 clearing price in a secondary
market auction on SharesPost, up $3 per share on the price in SharesPosts auction in April 2011. Assuming a total
outstanding shares figure of 2.5 billion, Facebook had reached an $87.5 billion valuation.
The rise in perceived value could be attributed to LinkedIns successful May 2011 initial public offering and sources that
cited that Facebook was exceeding growth forecasts. Among the figures circulated, Facebook was rumored to be on track
to generate more than $2 billion in EBITDA for 2011.
June 2011: Reed Hastings Joins Board of Directors
In late June 2011, Netflix CEO Reed Hastings joined Facebooks board of directors.
Hastings had led Netflix through its initial public offering in May 2002, illustrating a pragmatic decision for Facebook to
add him to its now six-member board of directors given 2012 IPO plans. Hastings is also the lead independent director on
the board of directors for Microsoft, one of Facebooks shareholders.
As of November 2011, Facebooks board of directors includes the following: Mark Zuckerberg (Facebook), Reed
Hastings (Netflix), Marc Andreessen (Andreessen Horowitz), Jim Breyer (Accel Partners), Peter Thiel (Founders Fund),
and Donald Graham (Washington Post Company).
June 2011: Privacy Concerns Over Facial Recognition Software in Photo-Tagging
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In early June 2011, Facebook began to face resistance to the facial recognition software integrated in the social
networks photo-tagging technology, called Tag Suggestions, which it had gradually phased in across the globe over
the months prior. When a Facebook user uploads a photo album, the facial recognition technology scans the faces in the
album against other photos in which the users friends had already been identified. Objections emerged from data
protection regulators in the European Union, the Information Commissioners Office of Britain, and other privacy groups
across the world.
July 2011: Facebook Surpasses 750 Million Member Mark
Although returning visits had begun to plateau, and even drop in key markets like the United States, Facebook
announced that it had crossed the 750 million worldwide member mark in early July 2011.
August 2011: Facebook Valuation Suffers First Consecutive Drop
In August 2011, Facebook suffered its first-ever consecutive decline in private markets. Facebooks August 16 drop to
$33 per share in secondary market auctions had essentially erased nearly $5 billion in the companys value, reducing
Facebooks valuation to the same price it had received in March 2011. In response to new competition and declining
user activity, Facebook announced that it would be rolling out new privacy features on Thursday, August 25, 2011.
Facebooks privacy changes signal that the company had become more attentive to its users, but only after years of
doing otherwise and influenced by the threat of competition from Google+.
September 2011: Facebook Substantial Redesign; "Timeline" Launched
In September 2011, Facebook announced a significant redesign at its f8 developers' conference, centered around the
themes of "Read, Watch, Listen." Among the significant changes include integrating streaming music and video purchase
and subscription options into users' Facebook profiles, providing the ability to stream friends' updates and newsfeeds in
real time, including articles those friends have just read, songs they have just listened to, and videos they have just
viewed. In addition, Facebook re-organized users' profiles around a Timeline, a virtual scrapbook showing a users'
events, photos and network additions from birth to the present day. The changes were met with mixed reviews.
In conjuction with Facebook's redesign, the company also announced partnerships with several media content
companies, including The Washington Post Company for news articles, Netflix for streaming movie rentals, and Spotify
for music sales.
October 2011: Facebook for iPad
In October 2011, Facebook introduced its long-awaited iPad Application. Acclaimed new features included the ability to
view HD Videos and connect to other devices.
November 2011: More IPO Rumors
In November 2011, inside sources at Facebook said that the social network was then considering an IPO some time
between April and June 2012, planning to raise $10 billion at a $100 billion valuation. The firm was reportedly developing
an in-house prospectus for the offering, and CFO David Ebersman has made statements regarding his skepticism about
the value added by an investment bank for Facebook's IPO.
December 2011: Facebook amps up location technology for Timeline product
In early December 2011, inside sources revealed that Facebook Inc. had acquired Gowalla, a location-based social
networking company. Facebook already offers location tagging, but the employees at Gowalla will apparently be joining
Facebook's timeline team. Around the time of the Gowalla acquisition, Facebook started prompting users to confirm the
locations of photo albums, apparently in preparation for the integration of location tagging into the Timeline product.
Timeline rolled out globally in December 2011 for users who wanted the feature. (After activating, users have a 7 day
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review period to delete actions from Timeline).
Facebook Moves Into New Headquarters Campus
In December 2011, Facebook completed the move into its new headquarters in Menlo Park, a one-million square foot
campus housing just over 2,000 of its employees. The new corporate headquarters at 1601 Willow Road in Menlo Park
consists of an east and west campus, with only the former currently in use. The west campus remains undeveloped, but
future development on the campus would bring capacity to as many as 9,400 employees.
The move began during the summer with 500 employees relocating to the east campus, which is the former home of Sun
Microsystems.
Opportunities Moving Forward
Mobile Growth
Out of Facebooks nearly 800 million active users, roughly 35% access the site from a mobile device. Facebook's iPad
application launch poses further opportunities for revenue growth.
Expansion Into China
In May 2011, Facebook announced plans to launch in China and abide by Chinese law. In order to properly comply with
Chinese law, Facebook plans to partner with a Chinese search engine, most likely Baidu, which will enforce proper
censorship and compliance with Chinese laws. Given Facebooks current successes in emerging market countries with
large populations such as Mexico, Brazil, and India, the company could see a material increase in growth by launching in
China.
Third-Party Media Plug-Ins, Expanded Use of Facebook Credits
In April 2011, Facebook cited the positive effects a particular brand or product may witness when a user shares a related
purchase theyd made with their Facebook friends. In one example, each time that a user shared that they had
purchased an event ticket from Ticketmaster, others within their network spent an additional $5.30 on products from the
same vendor.
Additional partnerships outside of e-commerce could potentially provide additional and significant streams of revenue for
Facebook. A deal with an online music provider such as Spotify and Pandora or an online video partnership with a
provider such as Netflix could allow users to stream music or video on the Facebook platform. In addition to the valuable
data and analytics, partnerships of the sort could potentially increase return visits and average time on site as well as
provide additional opportunities for Facebook to gain 30% on Facebook Credits transactions.
In late June 2011, Netflix CEO Reed Hastings joined Facebooks board of directors.
Hastings had led Netflix through its initial public offering in May 2002, certainly a practical decision for Facebook to add
him to its now six-member board of directors if they plan to go public in 2012. Hastings is also the lead independent
director on the board of directors for Microsoft, one of Facebooks shareholders.
Increased Influence in Washington
Historically, Facebook has run into a number of legal issues in regard to privacy. Increased influence with the government
may help to alleviate future issues and concerns.
In April 2011, President Barack Obama paid a visit to Facebooks headquarters in Palo Alto. President Obama fielded
questions from Facebook staff and from Facebook users tuning in with Facebook CEO Mark Zuckerberg acting as
moderator.
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In May 2011, Facebook hired Joel Kaplan to run its office in Washington, D.C. Kaplan had previously served as an
executive vice president at Energy Future Holdings where he was in charge of the companys public policy and external
affairs, and was George W. Bushs deputy chief of staff prior.
Facebook also announced the hiring of Myriah Jordan, who formerly served as general counsel to Senator Richard Burr,
Republican of North Carolina.
2011 Facebook Federal Trade Commission Settlement
In November 2011, Facebook, Inc. agreed to settle Federal Trade Commission allegations that the world's largest social
networking site repeatedly deceived users and shared their personal information without consent.
Without admitting wrongdoing, Facebook agreed to a tentative pact that requires the company to obtain users' express
permission before changing settings that govern their personal information, as part of a "comprehensive" program to
protect users' privacy, which will be subject to independent audits for the next 20 years.
The settlement, which echoes recent FTC agreements with Google (GOOG) and Twitter, carries no specific penalties but
provides that Facebook could be fined $16,000 a day for any future violation of the pact.
Facebook Open Engineering Office in New York City
In December 2011, Facebook, Inc. announced plans to open an engineering office in New York City (in addition to its
local sales office). Facebook's New York City office is the company's first engineering office not located on the West
Coast.
PRIVCO PRIVATE COMPANY FINANCIAL ANALYSIS: FACEBOOK, INC.
Concerns Moving Forward
Facebook Fatigue Plateau and Decline of Returning Users in Key Markets
Facebook witnessed its first decline in May 2010 with drops in North America, the United Kingdom, and Norway.
According to Inside Facebook, Facebooks U.S. audience fell from 155.2 million to 149.4 million in May 2011 and
decreased 8% in Canada. Continued growth can be primarily attributed to developing countries with large populations
such as Mexico, Brazil, India, and Indonesia.
Inside Facebook observes that once Facebook achieves a membership of roughly 50% of a countrys total population,
continued growth slows to a halt. After setting up profiles and uploading photos, revisits from Facebooks earliest users
begin to decline. The decrease in a users desire to revisit can be attributed to a number of potential factors. While some
cite their Facebook friends lists were filled with meaningless relationships, others cite that the information their peers
shared wasnt of importance to them. Additionally, some users choose not to revisit due to privacy concerns and some
early adopters move onto newer trendsetting offerings.
Decline in Ad Pricing
Facebooks advertising performance has been on the rise and, according to comScore, consisted of roughly 30% of all
online display ads in the United States for the first quarter of 2011. While Facebook ads had historically cost less than its
competitors, pricing had begun to rise over the course of 2010 and more so into 2011. However, in the spring of 2011,
Facebook expanded its ad space to include three advertisement slots per page, up from two, a move that PrivCo predicts
will counteract the trending increase in price per advertisement on Facebook.com.
Emergence of Google+
Within only three weeks, Google+ began attracting valuable market share. Googles Facebook rival crossed the 20
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million users mark, growing virally. PrivCo believes that Google launched its social media product just in time for 2012
ad-budget planning season, forcing businesses to set aside portions of 2012 social-media budgets for Google+ at
Facebook's expense. And Google, (uncovered as a Zynga shareholder in Zyngas July 18, 2011 S-1/A filing), has plans
on Google+ for social gamingone of Facebook's largest profit sources.
Given Facebooks strict requirements for all companies selling virtual goods on Facebook to use Facebook Credits for
their transactions, which Facebook receives a 30% commission on, new entrants like Google+ could viably provide a
platform for virtual goods companies with more attractive options.
Google+ Games, which released on August 11, 2011, can also particularly damage a major source of revenue for
Facebook. With the arrival of Google+ Games, Google+ can now begin to undercut Facebook as an app development
platform. Google+ Games developers will be paying a promotional 5% fee on revenues as opposed to the 30% that
Facebook demands.
PrivCo calculates that 1/3 of Facebook's revenues come from Facebook Credits, virtually all of which (90%) is used for
social games (the remaining 2/3 of Facebook's overall revenue is derived from advertising). This suggests that Google+
Games is directly attacking 1/3 of Facebooks revenues.
"Facebook opened the window for Google to step into by demanding such onerous terms from social games developers
on Facebook," says Sam Hamadeh, CEO at PrivCo. "These terms include abruptly demanding a 30% cut of developers'
revenues by requiring all payments to go through Facebook Credits. This has generated tremendous animosity in the
social games developer community. Facebook overreached, and now Google Games is well positioned to capitalize on
the opportunity by offering games developers vastly lower pricing terms, and no exclusivity and ownership of their own IP
(intellectual property)."
Increased competition from Google+, combined with other factors such as Facebook Fatigue will impact Facebooks
ability to trade on private markets and, in turn, is likely to delay Facebooks potential IPO.
Potential Loss of Business from Zynga, Either Directly or Inadvertently
On July 18, 2011, Zynga filed an amendment to its S-1 IPO filing with the Securities and Exchanges Commission. The
updated filing included the developer addendum agreement between Facebook and Zynga, which indicated how
significant a reliance Zynga has on Facebook for traffic, advertising, and strategy (please see the Exhibits section of this
report for copies of said agreement). The agreement acknowledges that [Facebook] desires to enable Zynga to build the
Zynga Platform on top of the Facebook Platform, and amongst other goals [the parties will] work together to increase
the number of users of each partys products and services.
Facebook allows Zynga to provide social gaming services on its platform in return for certain exclusivity rights on leading
titles. Additionally, Facebook is committed to set certain growth targets for monthly unique users of Covered Zynga
Games. Facebook also takes a 30% cut on all virtual goods sold by Zynga. While this may be a grey area in terms of
unfair competition, Zynga may potentially nullify its agreement in the future if another social platform were to emerge and
offer more attractive terms.
Since Zyngas business health is so strongly related to that of Facebook, investors may view Zyngas performance as an
indicator of how well Facebook is performing. Upon the public disclosure of the developer addendum agreement between
the two parties, Zyngas limited diversity of risk and heavy reliance on Facebook for its own financial performance may
dissuade investors. In the event that Zyngas IPO and subsequent public market performance were to fall short of
expectations, Facebook may be inadvertently and negatively affected.
Potential Loss of Investor Confidence in Private Stock Markets
New risks associated with Facebooks relationship with Zynga, the emergence of new competitors (namely,
Google+), and user activity decline in key markets may leave private market investors less likely to justify purchasing
Facebook stock at an +$80 billion valuation in the near term. Due to the potentially bad publicity and dilution associated
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with a down round, Facebook would unlikely approve private stock transactions at a decline in value.
Facebook Credits Usage Requirement Provided One-Time Benefit In 2010, Making Second Half 2011 Growth
Rates Increasingly Difficult
For the first half of 2011, Facebook achieved approximately 90% revenue growth over the first half of 2010. This growth
rate fell short of all internal, external and investors' projections. In addition, even this growth rate was achieved by the
Company in part due to easier comparisons resulting from the absence of the recent Facebook Credits Usage
requirement for most of 2010's first half; Facebook's mid-year introduction of Facebook Credits required for all games and
virtual goods sold on Facebok contributed at least $300 million in new revenue, or an additional 20% of its revenue
growth, most not present in its first half 2010. Given that in the second half of 2010 Facebook had largely already
implemented a new requirement that large games developers on Facebook require all payments via Facebook Credits -
with Facebook's 30% fee of all games and virtual goods sold - Facebook's 2011 second half will not benefit from this one
time introduction of a new revenue source beyond its advertising revenue. As a result, Facebook's second half growth
rate is expected to be even lower than its first half, to as little as 50%, particularly in light of Zynga's recent disclosure that
its users paying for games on declined year over year (Zynga is by far Facebook Credits' largest revenue source). PrivCo
therefore expects Facebook's full year revenue growth to slow to 69%....still impressive but far short of its projections - an
over $1 billion shortfall at a minimum from its original projections.
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EXHIBIT
Title: Amended Certificate of Incorporation
23 pages
Type: Legal - Other
Exhibit begins on next page.
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EXHIBIT
Title: Facebook v. Sanford Wallace
26 pages
Type: Legal - Litigation/Lawsuit
Exhibit begins on next page.
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Facebook, Inc.
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EXHIBIT
Title: January 2010 Stock Option Filing
1 page
Type: SEC Filing
Exhibit displayed on next page.
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Facebook, Inc.
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EXHIBIT
Title: Internal Memo re Bret Taylor CTO Hire
1 page
Type: Internal Memo/Email
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=======================
Internal Email from Mark Zuckerberg
June 3, 2010
Re: Hiring of New CTO Bret Taylor
=======================
Hey everyone,
I have some good news to share with all of you. Ive created a new role and have asked Bret Taylor to become our CTO.
Bret joined us almost a year ago as our director of platform products. Since then, he has played a key role in building many parts
of our new platform, including social plugins, our new graph API and the Open Graph. Since f8, already more than 100,000 sites
use social plugins and our new API has received lots of praise for its elegance and simplicity. In addition, Bret has helped shape
my thinking on products, engineering and strategy in many ways.
Today, Bret has just a couple of direct reports and gets things done by being a helpful source of advice and positively influencing
decisions on a number of products. Ive been talking with him recently about how he could play a similar role working with a few
other areas to help shape our direction as well. Since Bret engages both in technical and product issues, I decided that creating a
new CTO position outside of both engineering and product was the best way to formalize this new role.
In this role, Bret will report to me and will not manage anyone else. The CTO role is not a management role. The roles of
building and running the product, engineering and operations organizations arent changing at all here. If you would have gone to
Schrep, Chris Cox or Heiliger for something in the past, you should still go to them now. (Although, to be honest, Schrep, Cox,
Bret and I all sit in the same pod so you can pretty much grab any of us at the same time.)
Bret will stay focused on Platform, but this new role sets him up to help out more in other areas as well. The platform product
management work Bret has been doing will continue to report to Cox and the product organization as he does this. One of the
reasons we can make this change is because of the great work Mike Vernal has been doing to lead the engineering team. Im
highly confident in him to continue building out this organization.
When I look around product and engineering, there are so many unique things were building with very leveraged small teams
right now. Platform is the foundation for an entire industry, and our team has about 30 engineers. News Feed is the home page for
more than 250 million people every day, and our team has fewer than 15 engineers. Our search type ahead serves the same order
of magnitude of queries as Google, and our team has fewer than 15 engineers. These are examples of transformative products that
were going to build out over the next few years and Im focused on making sure we build them out the right way.
If you have a moment, please join me in congratulating Bret on his new role. If you have questions about this or anything else,
feel free to shoot me a note or come ask it at our next Open Q&A.
Mark

Facebook, Inc.
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EXHIBIT
Title: Ceglia vs. Zuckerberg
25 pages
Type: Legal - Litigation/Lawsuit
Description: Lawsuit claiming a 50% interest in Facebook arising from a 2003 partnership agreement between Paul
Ceglia and Mark Zuckerberg.
Exhibit begins on next page.
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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
PAUL D. CEGLIA, an individual,
Plaintiff,
-against-
MARK ELLIOTT ZUCKERBERG, an
individual, and FACEBOOK, INC., formerly
known as TheFaceBook, Inc., a Delaware
corporation,
Defendants.
:

:

:

:

:

:

:
CIVIL ACTION NO. 10-569(RJA)
FIRST AMENDED COMPLAINT
TRIAL BY JURY DEMANDED

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

Plaintiff PAUL D. CEGLIA (Ceglia) alleges:
NATURE OF THE ACTION
1. On April 28, 2003, Mark Elliott Zuckerberg (Zuckerberg) entered a written
contract (the Agreement) with Ceglia for the continued development of the software, program
and for the purchase and design of a suitable website for the project Seller [Zuckerberg] has
already initiated that is designed to offer the students of Harvard university (sic) access to a
wesite (sic) similar to a live functioning yearbook with the working title of The Face Book.
The Agreement further provides that: It is agreed that Purchaser [Ceglia] will own a half
interest (50%) in the software, programming language and business interests derived from the
expansion of that service to a larger audience.
2. As a matter of law, the Agreement established a general partnership between
Ceglia and Zuckerberg for the development and commercialization of The Face Book, the
concept and website with the initial title of thefacebook.com and the business interests derived
therefrom (the General Partnership). As described in the Agreement, Ceglia contributed
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 1 of 25
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capital to the General Partnership. And, according to the Agreement, Zuckerberg contributed the
software, programming language and website in its then-current form that he had started to
design to offer the students of Harvard University access to a website similar to a live
functioning yearbook with the working title The Face Book. The course of conduct between
Ceglia and Zuckerberg, after the formation of the General Partnership, shows Ceglia also
contributed his time, ideas, knowhow and other sweat equity to the General Partnership. As
described in the Agreement and the course of conduct after the formation of the General
Partnership, Zuckerberg also contributed his time, ideas, knowhow and other sweat equity to
the General Partnership. Their respective contributions resulted in the creation of software,
programming language, a website, other intellectual property and business interests, all of which
became property of the General Partnership of which the parties intended and the Agreement
specified that Ceglia is the 50% owner.
3. As of February 2, 2004, Zuckerberg had not completed The Face Book website.
On that same day February 2, 2004 Zuckerberg sent to Ceglia emails complaining that a
provision in the Agreement giving Ceglia an additional 1% interest in the business for each day
after January 1, 2004 that The Face Book website was not complete, was unfair because it
would give Ceglia over 80% ownership of the business, including thefacebook.com website. On
February 3, 2004, Ceglia agreed to waive the provisions in the Agreement that increased his
ownership interest in the General Partnership to over 80%. Perhaps not coincidentally, the very
next day, on February 4, 2004, Zuckerberg informed Ceglia by email that the thefacebook.com
website had launched.
4. After the website launched, the website was an immediate success. Zuckerberg
then embarked upon a secret scheme to misappropriate the General Partnerships assets and
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 2 of 25
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opportunities for himself. Zuckerberg did this by concealing the websites success from Ceglia
and misrepresenting to Ceglia that Harvard students were not interested in the website, that he
was losing interest in the venture and was considering abandoning it. Zuckerberg then
misappropriated the General Partnerships (1) opportunity to expand the website and the Face
Book project beyond Harvard University students and (2) assets, and contributed them to a
corporation formed in July 2004, but never informed Ceglia or accounted for them to the General
Partnership or Ceglia. The corporation is now known as Facebook, Inc. Whatever interest
Zuckerberg received from contributing the assets of the General Partnership to the corporation
including, but, not limited to, cash, stock, stock options, restricted stock units or any other
consideration received by or promised to Zuckerberg was and is property of the General
Partnership. Ceglia brings this action to recover, among other things, his 50% share of the
interest acquired by General Partnership as a result of Zuckerbergs actions.
PARTIES
5. Plaintiff Ceglia is a resident of Wellsville, New York with an address of 2558
Hanover Hill Road, Wellsville, New York.
6. Defendant Zuckerberg currently resides in California.
7. Defendant Facebook, Inc. is a corporation organized under the laws of the State of
Delaware and maintains its principal place of business in Palo Alto, California. Facebook, Inc.
was incorporated on July 29, 2004, under the name of TheFaceBook, Inc. On September 30,
2005, it changed its name to Facebook, Inc.
JURISDICTION AND VENUE
8. On July 9, 2010, this matter was removed to this Court by Defendants on the
ground of complete diversity under 28 U.S.C. 1332. Complete diversity jurisdiction exists
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 3 of 25
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under 28 U.S.C. 1332 as this action is between citizens of different states and the amount in
controversy exceeds $75,000, exclusive of interest and cost.
9. This Court has supplemental jurisdiction over the Plaintiffs causes of action
arising under New York State statutory and common law pursuant to 28 U.S.C. 1367(a).
10. This Court has personal jurisdiction over the Defendant Facebook, Inc. because
this Defendant is authorized by the New York Department of State to do and does business in
this State.
11. This Court has personal jurisdiction over Defendant Zuckerberg as he has
committed tortious acts within the State of New York and/or tortious acts outside the State of
New York which impact a New York resident. This Court also has personal jurisdiction over
Defendant Zuckerberg as he is engaged in substantial activity within this State and because he
maintains an interactive website that is directed towards this States persons and entities.
Defendant is doing business and has done business in this State and District by offering for use
his products and services.
12. Venue is proper in this Court pursuant to 28 U.S.C. 1391(a)(3) because a
substantial part of the events or omissions giving rise to the claims occurred in this District.
FACTS COMMON TO ALL CLAIMS FOR RELIEF
13. In 2002 and 2003, Ceglia was developing an on-line database that would be, and
was, deployed through a website known as StreetFax.com. StreetFax.com compiled into a
database photographs and other information related to traffic intersections that were intended to
allow insurance adjusters to easily obtain such information to assist them in handling claims.
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 4 of 25
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14. From time-to-time, Ceglia hired programmers, web developers and other
individuals to assist him with developing StreetFax.com. He frequently located such individuals
through on-line, help wanted advertisements on craigslist.com.
15. In 2003, Ceglia posted advertisements seeking programmers who would be able
to develop the search engine feature for StreetFax.com that would provide non-specific name
searching, synonymous term linking and the ability to comment on specific photographs. Those
features, along with others, would allow someone with an account to search for and find the
name and location of a specific intersection, and offering the top closest results if an exact match
could not be found. This allowed a user to find the right name even if the user misspelled that
name or used an abbreviation that did not match what was entered into the database.
16. In early 2003, Zuckerberg responded to Ceglias craigslist.com advertisement.
17. Upon learning Ceglias requirements, and after several lengthy conversations
about the possibility and strategy of creating a search engine that could find a specific name as
long as the spelling was close, in a telephone conversation in April 2003, Zuckerberg told
Ceglia that he was working on a great project. Zuckerberg told Ceglia if Ceglia hired him to
work on the StreetFax.com project and helped fund the development of his other project,
Zuckerberg would give Ceglia a one-half interest in Zuckerbergs other project.
18. Zuckerberg explained to Ceglia that the other project would involve an on-line,
interactive yearbook, which initially would be targeted at students attending Harvard University,
where Zuckerberg was also a student. Zuckerberg told Ceglia that this project was inspired by
the on-line year book used at the boarding school that he attended. Zuckerberg further explained
to Ceglia that the project could be expanded beyond Harvard University. Zuckerberg told Ceglia
that the projects working title was The Face Book.
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 5 of 25
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19. Ceglia accepted Zuckerbergs offer and agreed to pay Zuckerberg $1,000 for his
work on StreetFax.com and $1,000 for work to be performed to continue to develop The Face
Book.
20. Ceglia and Zuckerberg agreed to meet at the Radisson Hotel in Boston,
Massachusetts, on April 28, 2003 to sign a written contract.
21. From his home office in Wellsville, New York, on April 25, 2003, Ceglia
prepared the agreement on his computer, combining two different forms of agreements that were
given to him in the past and modifying them to capture the terms that Zuckerberg and Ceglia
agreed to over the telephone. The agreement covered both the work Zuckerberg agreed to do for
StreetFax.com and their agreement concerning The Face Book. Ceglia printed and saved the
agreement on April 25, 2003.
22. On April 28, 2003, Ceglia, accompanied by Karin Petersen, met Zuckerberg in the
lobby of the Radisson Hotel in Boston. Ceglia provided the agreement to Zuckerberg, who spent
a significant amount of time reviewing the agreement. Zuckerberg asked for one change on the
first page of the agreement, which was handwritten on to the first page of the document and
initialed by Zuckerberg and Ceglia. Zuckerberg and Ceglia then signed the Agreement, which is
attached hereto as Exhibit A. Except for the handwritten interlineations made on April 28, 2003,
Ceglia made no changes to the agreement after printing it on April 25, 2003.
23. The Agreement provides in pertinent part that:
[I]t is for the continued development of the software, program and
for the purchase and design of a suitable website for the project
Seller has already initiated that is designed to offer the students of
Harvard university (sic) access to a wesite (sic) similar to a live
functioning yearbook with the working title of The Face Book
It is agreed that Purchaser will own a half interest (50%) in the
software, programming language and business interests derived
from the expansion of that service to a larger audience.
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 6 of 25
-7-
24. The Agreement defines Seller as Mark Zuckerberg, his agents, employees,
suppliers, or sub-contractors, furnishing materials equipment, or services. The Agreement
defines Purchaser as Paul Ceglia.
25. The Agreement further provides that:
The Agreed upon Cost that the Seller and the Buyer (sic) have
agreed upon are as follows: Buyer (sic) agrees to pay the seller
(sic) the Sum of $1000 a piece for the work to be performed for
Streetfax and $1,000 for the work to be performed for The Page
Book (sic).
26. During their conversations before the execution of the Agreement and thereafter,
Ceglia and Zuckerberg discussed using the name The Face Book and The Page Book for
their venture and, thus, the terms were synonymous. Indeed, when viewed in the context of the
Agreement (along with the other typographical errors, misspellings and failures to consistently
use defined terms found in the Agreement), in this provision, the Agreements reference to The
Page Book clearly is to the same The Face Book venture, which is referenced in other parts of
the Agreement.
27. The Agreement provides immediately below the interlineations on the first page
of the agreement and adjacent to Zuckerbergs initials:
The agreed upon completion for the expanded project with
working title The Face Book shall be Janruary (sic) 1 (sic) 2004
and an additional 1% interest in the business will be due the buyer
for each day the website is delayed from that date.
28. The Agreement provides continued performance as follows:
For The Face Book Seller agrees to maintain and act as the sites
(sic) webmaster and to pay for all domain and hosting expenses
from the funds received under this contract, and Seller agrees that
he will maintain control of these services at all times.
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 7 of 25
-8-
29. Ceglia paid Zuckerberg the $1000 called for in the Agreement for the continued
development of The Face Book. Ceglia also paid Zuckerberg for the work on StreetFax.com,
some of which was used for The Face Book.
30. As a matter of law, the Agreement created a general partnership (defined above as
the General Partnership) between Zuckerberg and Ceglia. Zuckerbergs and Ceglias
contributions to the General Partnership became, and would become, property of the General
Partnership. The fruits of those contributions such as the creation of the software, program,
the purchase and design of a suitable website and business interests derived from the expansion
of that service or website to a larger audience also became property of the General
Partnership. Further, as a result of the formation of the General Partnership, Zuckerberg and
Ceglia owed each other fiduciary duties of, among other things, candor, loyalty and good faith.
31. After Zuckerberg and Ceglia signed the Agreement, they began to communicate
with each other concerning both the StreetFax.com project and The Face Book project. Those
communications occurred over the telephone and through the use of emails. In particular,
Zuckerberg and Ceglia communicated with each other concerning the design and functionality of
The Face Book website, various ways that they could generate income from The Face Book
website, various ways they could expand The Face Book to a larger audience beyond Harvard
University, and technical and other challenges in developing The Face Book website.
32. On July 30, 2003, Zuckerberg sent an email to Ceglia informing Ceglia that:
. . . Ive been tweaking the search engine today [referring to the
StreetFax.com project] and Im pleased with its results. Id like to
use it for the Harvard site [referring to The Face Book], I think it
will really help people find each other, even if they spell names
incorrectly. Would it be agreeable with you if I adapt the source
code? Thanks!
33. On September 2, 2003, Zuckerberg sent an email to Ceglia explaining that:
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 8 of 25
-9-
I have been away for a few days without internet, during that time I
revised the business plan for the Harvard site. I would like to talk
to you on the phone about it in detail. As you mentioned last week,
the issue we must resolve is how to produce a revenue stream from
the users. My conclusion this past week is to charge Alumni
$29.95 a month. With this in mind, considering just 300 people,
and the projection of a $9000 monthly revenue, we could, as you
suggested, rapidly expand to other colleges. Further, since the plan
involves more than one college, the name cant have Harvard in it
and remains unresolved. Additionally, both original names
>facebook.com and pagebook.com are unavailable, so there is no
actual domain name either. thefacebook.com and thepagebook.com
are both available but are clearly not a premium quality domain as
they are much harder to remember.
34. On September 2, 2003, Ceglia responded to Zuckerberg:
I like your thinking about funding expansion, Im not sure a
monthly fee is the way to go though, we are having a hard time
getting adjusters to pay it and its their business. Id be concerned
that we wouldnt (sic) get enough people on there to keep anyone
interested. Maybe we could make it free until it was popular and
then start charging? I wouldnt worry too much about a name if
they are both already gone, are any of them due to expire? It took
us ages to find Streetfax.com and the minute I did I just knew that
is what I was waiting for. Lets talk about it on the phone, call me
tonight if you get this in time. I suggest we look into a licencing
(sic) agreement with Harvard (sic), I had one once with Syracuse
University and it was pretty easy, then we could have a store on the
site and sell sweatshirts, mugs, t shirsts (sic) and stuff to alumni
and have some money coming in right away.
35. Ceglia provided Zuckerberg an additional $1000 in November 2003.
36. On November 22, 2003, Zuckerberg sent Ceglia an email that read in the subject
line, Urgent! Lets Talk. The email informed Ceglia that:
I have recently met with a couple of upperclassmen here at
Harvard that are planning to launch a site very similar to ours. If
we dont make a move soon, I think we will lose the advantage we
would have if we release before them. Ive stalled them for the
time being and with a break if you could send another $1000 for
the facebook (sic) project it would allow me to pay my roommate
or Jeff to help integrate the search code and get the site live before
them. Please give me a call so that we can talk more about this.
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 9 of 25
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37. Communications between Zuckerberg and Ceglia concerning their development
of The Face Book and the website planned by the Harvard upperclassmen described in
Zuckerbergs November 22, 2003 email continued through the balance of 2003.
38. On January 1, 2004, the date on which the The Face Book website was due to be
launched, Zuckerberg sent an email to Ceglia informing him that:
I just wanted to extend to you a Happy New Year and tell you that
all individual parts for the back end of the site have been
completed. The extra $1000 really helped get us further ahead and
if there is any way you can send some additional funding I believe
we will be online in a few weeks. I think it is unnecessary at this
point, with all of the extra work I have done for you, to hold me to
the original completion date. I should not be penalized for delays
that were out of my control, namely that there have been so many
unspecified requests from the Streetfax project that you wanted to
be placed as a priority, thereby delaying my start on our second
project. Thus, I am requesting a written waiver on your part
exempting me from the obligation to give you additional
ownership in the project that is outlined in our original contract.
39. Ceglia responded on the same day with an email explaining to Zuckerberg that he
could not remember the relevant terms of the Agreement and did not have access to it.
Consequently, he could not respond to Zuckerbergs request for a waiver. Zuckerberg replied by
email to Ceglia, informing him that he would scan the Agreement and send it to him.
40. The same day, Ceglia then responded by email:
Mark, Thanks Ill look forward to reviewing the details, just a
quick question, we seem to be having an issue with the backend
that has really been causing us some grief, I know that youre
position is that you,ve (sic) done all the work in the contract and
then some, I guess I am somewhat torn as on one hand in your
interest you want me to consider not enforcing my contract while
also then making it clear that more money is owed to you for
things that werent a part of yours, does that make sense to you? It
doesnt (sic) to me .. I am wondering if you see where I am coming
from here? You cant have it both ways Mark
41. Zuckerberg replied: Ill just get this site online as quickly as I can ...
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 10 of 25
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42. On January 5, 2004, Ceglia sent an email to Zuckerberg, asking him when The
Face Book website would be launched:
It is well past January 1st and to my knowledge you dont have a
single thing done for the site, (sic) I gave you an extra $lk in
November so we could rush it ahead of these other guys and as far
as I know you dont even have a domain name or a home page
built, let alone the actual database. For now I suggest you use my
search engine and we work out the details. Im starting to think
you just blew that money Mark. You know perfectly well that you
cant just take a persons (sic) investment and then spend it on
women and beer or whatever you do up there in Harvard. Ive been
stalled long enough on this thing and if I dont see something soon
(sic) Ill have no choice but to contact the school and perhaps your
parents in Dobbs Ferry and let them know whats (sic) been going
on.
43. Zuckerberg responded on January 6, 2004:
Threats to call my parents are uncalled for and unprofessional and
you would be seriously violating our trust by doing so, I have done
what I can with the small amount of money you have invested and
I will have something live for you to view soon. Again I want to
state that under no circumstances do you have my permission to
contact my parents as they have nothing to do with my business
and just because I am young doesnt (sic) mean Im afraid of my
parents (sic) response. Please do not contact them about this issue,
they would probably just laugh you off anyway.
44. On January 13, 2004 and January 16, 2004, Ceglia and Zuckerberg exchanged
emails concerning the functionality of The Face Books website and whether they should adapt
the search engine built for StreetFax.com to it.
45. Recognizing that the delay in launching The Face Book website had the potential
to seriously dilute his interest in the venture, Zuckerberg sent an email to Ceglia on February 2,
2004, that read:
Paul, I have a rather serious issue to discuss with you, according to
our contract I owe you over 30% more of the business in late
penalties which would give you over 80% of the company. First I
want to say that I think that is completely unfair because I did so
much extra work for you on your site that caused those delays in
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 11 of 25
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the first place and second I dont even think it is legal to charge
such a huge penalty. Mostly though I just wont even bother
putting the site live if you are going to insist on such a large
percentage. Id like to suggest that you drop the penalty completely
and that we officially return to 50/50 ownership.
[Emphasis added.]
46. On February 3, 2004, Ceglia responded:
OK fine Mark 50/50 just as long as we start making some money
from this thing. Im looking forward to hearing how it goes but I
am so busy right now with a few other projects that my time is
very thin .. Lets get it live and open up the store. Have you had a
chance to inquire about getting a merchandizing license? We really
will need that soon so we can start bringing in some money,
everyone buys t shirts and mugs, especially the parents .. they
deserve bragging rights at home with the tuition they have to pay.
Also what about putting in something like a Christian corner? Ive
only been to Harvard a few times but the idea of being able to find
other Christians online without having to do the un PC thing of
asking someone face to face sounds to me like it would have some
real value, if only the spiritual kind. :-) and the other thing is links
to hotlines, why couldnt (sic) we have the rape crisis hotline, the
suicide hotline, drug rehab and so on right there so when someone
really needs something they could link over to the site they
wanted? Same thing for local pizza and chinese (sic) or whatever,
that way it could really be a resource that a person could use.
47. After finally learning that Ceglia would waive the provision in the Agreement for
delivering The Face Book website late, Zuckerberg then informed Ceglia on February 4, 2004
that the website was live: Paul, [] thefacebook.com opened for students today, when you get
a chance take a look at it. Ill let you know how it goes.
48. Ceglia responded on February 4, 2004:
Congrats Mark! The site looks great, Just wondering if we might
think of another title for it without the the, but plenty of time for
that, Ill try and think of some names, I looked for weeks to finally
find streetfax.com and that is how I named it, backwards from the
availability, (sic) Im sure you checked to see if just facebook.com
was available? you (sic) know another thing ive (sic) been
thinking of that I perfected in Streetfax is going city to city, (sic) If
you went city to cityh (sic) with this I think it would be far easier
Case 1:10-cv-00569-RJA Document 39 Filed 04/11/11 Page 12 of 25
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than just trying to open it up to all ivy league (sic) schools at once,
actually get on the ground in each place, we send a half dozen guys
into the city on bikes and within a few weeks we have photos of
every intersection in the place, so the same thing could be done
onlyh (sic) putting up flyers to promote the site, just brainstorming
some ideas on how we can start making some money.
49. On February 6, 2004, Zuckerberg then writes to Ceglia:
Sorry its taken me a few days to respond, (sic) Now that the sites
(sic) live I feel I must take creative control and I just can not risk
injuring my sites (sic) reputation by cheapening it with your idea
of selling college junk, nor do I wish to spend my time shipping
out coffee mugs to rich alumni. The site is cool as it is and I dont
care about making any money on it right now, I just want to see if
people will use it. If I had the rest of the money I was owed by you
for all that extra work I did I wouldnt even need to make money at
all on this site. That is money I am entitled to and is rightfully
mine.
50. Taken aback by Zuckerbergs February 6 email, Ceglia responded on February 7,
2004:
Mark, all I can think is your parents have handed you everything
your entire life and after all this time and energy and MONEY that
you think in your head that an Ok way to act is to just say- oh Ive
changed my mind I dont think its cool to make money and that
that should be that. Then you have the nerve to suggest that I
should pay you more money if I get you right, so that you dont
(sic) have to try to make money on the site weve built?? Its one
thing to say you dont want to sell coffee mugs but I dont see why
since the margins are excellent and with minimal effort we could
generate some decent revenue for us while keeping the site free to
students. Its one thing to say Id like to discuss with you other
ways we could produce revenue for the site, like advertising, we
could sell ads locally I am sure and to places that already sell
alumni stuff (but we will be losing the margins) angel investors are
just con men and until we have some decent revenue we arent
going to get a dime from them without giving up the whole thing
and anyway at this point its just a freaking harvard (sic) thing. I
need to be able to get on the actual site and see where we can place
some ads and we need to get some bike couriers to go around
promoting the site so we can get some people using it FIRST! But
we need to get some advertising on the site right away if you like
that route better so alumni are used to seeing some ads from the
beginning. Isnt there a way to count how many people click to
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their site from ours?
51. On April 6, 2004, Zuckerberg wrote Ceglia an email, representing to him that he
is considering abandoning The Face Book website, claiming he was too busy to work on it and
there was a lack of interest in it among students:
Paul, I have become too busy to deal with the site and no one
wants to pay for it, so I am thinking of just taking the server down.
My parents have a fund that I can tap into for my college expenses
and I would just like to give you your two thousand dollars back
and call it even on the rest of the money you owe me for the extra
work. At this point I wont even really be able to work on the
facebook until Summer.
52. Ceglia responded almost immediately:
Youve got some nerve talking about me owing you with the
CRIMINAL stunts youve pulled (sic) Reasonable people go to
court to resolve their differences they dont go stealing things
dude, you stole code, not once, not twice but THREE TIMES! Do
you have any idea the damage youve done??? Grow up, take a
fucking ethics class, choke yourself with that silver spoon of yours.
53. The CRIMINAL stunts and other activities referred to in Ceglias April 6, 2004
email involved Zuckerbergs efforts to sabotage the StreetFax.com website on multiple occasions
by hacking into it and altering the code, causing it to shutdown. Zuckerberg did that because
Ceglia refused to pay Zuckerberg more than what they agreed for the work Zuckerberg had done
on the StreetFax.com website.
54. Contrary to Zuckerbergs representations to Ceglia, and unknown to Ceglia,
thefacebook.com website was an immediate success and well received by the students at
Harvard. In fact, the website was so well received that other Harvard students and other
individuals expressed an interest in investing in the website and participating in its development.
Beginning with Zuckerbergs February 6, 2004 email to Ceglia, Zuckerberg was intentionally
attempting to sour their business relationship in order to convince Ceglia to abandon it.
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55. On July 22, 2004, Zuckerberg wrote to Ceglia an email, that read:
Paul,
I am guessing that you dont want to talk to me but I wanted to say
happy birthday and that I hope to resolve our differences. I see that
what I did was wrong and I am really sorry that I behaved as I did.
Please give me your address and I will mail you back the $2000 for
your trouble, more if it will repair our business relationship.
Another summer is here and I still dont have any time to build our
site, I understand that I promised I would, but other things have
come up and I am out in California working during break. I just
dont want the obligation of having to answer to you for not
following through and I wont be able to.
Best,
Mark
56. At the time Zuckerberg wrote his July 22, 2004 email, he had received or was
about to receive funding from angel investors and was in the process of meeting with venture
capital funds to provide additional capital. At no time did Zuckerberg inform Ceglia of these
facts.
57. On July 29, 2004, Zuckerberg either incorporated or participated in the
incorporation of an entity under the laws of the State of Delaware now known as Facebook, Inc.
Zuckerberg misappropriated the General Partnerships (1) opportunity to expand the website and
the Face Book project beyond Harvard University students and (2) assets, and contributed them
to Facebook, Inc., but never informed Ceglia or accounted for them to the General Partnership or
Ceglia. To the contrary, Zuckerberg misrepresented to Ceglia that he was not continuing to work
on further development of The Face Book, further expanding of The Face Book to a larger
audience or commercializing The Face Book for profit. In exchange for contributing the General
Partnerships assets to Facebook, Inc. and in taking the General Partnerships opportunity for
himself, Zuckerberg received and/or was promised to later receive cash, stock, stock options,
restricted stock units and/or other consideration.
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58. Ceglia never accepted a repayment of investment in The Face Book project and
never relinquished his 50% interest in the General Partnership.
FIRST CLAIM FOR RELIEF
(Declaratory Relief Against Zuckerberg)
59. Ceglia realleges paragraphs 1 through 58, inclusive, and by this reference
incorporates the same as though fully set forth herein.
60. Ceglia contends that:
a. The Agreement, together with the course of conduct between Zuckerberg
and Ceglia after the execution of the Agreement, as matter of law, created a General Partnership
under New York Partnership law, of which Ceglia was a 50% owner;
b. Pursuant to New York Partnership Law 10(a), A partnership is an
association of two or more persons to carry on as co-owners a business for profit;
c. The respective contributions of Ceglia and Zuckerberg became, and would
become, property of the General Partnership; and
d. The fruits of those contributions such as the creation of the software,
program, the purchase and design of a suitable website, thefacebook.com, and business interests
derived from the expansion of that service or website to a larger audience also became
property of the General Partnership.
61. Ceglia is informed and believes and thereon alleges that Zuckerberg disputes the
foregoing contentions.
62. Consequently, an actual controversy and dispute exists between Ceglia and
Zuckerberg concerning the formation, operation and assets of the General Partnership.
63. All necessary parties are before the Court so that it can grant declaratory relief.
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64. Therefore, Ceglia is entitled to declaratory relief under 28 U.S.C. 2201 and
2202.
65. As a result of the foregoing dispute, a judicial determination of the parties rights
and obligations is necessary.
SECOND CLAIM FOR RELIEF
(Breach of Fiduciary Against Zuckerberg)
66. Ceglia realleges paragraphs 1 through 65, inclusive, and by this reference
incorporates the same as though fully set forth herein.
67. As alleged above, starting in approximately April 2004 through July 2004,
Zuckerberg misrepresented to Ceglia that thefacebook.com was not successful, that he was too
busy to deal with the website, that he had lost interest in the website and that he was shutting the
website down.
68. Ceglia relied on the foregoing misrepresentations in that after July 2004, he had
no reason to follow up on whether the website and the business interests of the General
Partnership was a success or failure or to determine whether Zuckerberg was continuing with the
activities of the General Partnership.
69. On or around July 29, 2004, having lulled Ceglia into believing the General
Partnership would go nowhere, Zuckerberg misappropriated the opportunity of the General
Partnership to expand the website and The Face Book project beyond Harvard University
students and the assets of the General Partnership and contributed those assets to Facebook, Inc.
and took the partnership opportunity for himself. Zuckerberg also concealed his contribution of
the General Partnerships assets to Facebook, Inc., and the existence of Facebook, Inc., from
Ceglia. Zuckerberg did so for his own personal gain.
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70. In taking the actions described above, Zuckerberg breached his fiduciary duties of
candor, loyalty and good faith.
71. As a result of Zuckerbergs breach of fiduciary duty, all consideration received by
him or was promised to him in exchange for the General Partnerships assets, including, but not
limited to, cash, stock, stock options, restricted stock units and/or any other consideration, were
received, and continue to be held, by him in constructive trust for the benefit of the General
Partnership and Ceglia as a 50% owner of the General Partnership.
THIRD CLAIM FOR RELIEF
(Constructive Fraud Against Zuckerberg)
72. Ceglia realleges paragraphs 1 through 71, inclusive, and by this reference
incorporates the same as though fully set forth herein.
73. As alleged above, starting in approximately April 2004 through July 2004,
Zuckerberg knowingly misrepresented to Ceglia that thefacebook.com was not successful, that
he was too busy to deal with the website, that he had lost interest in the website and that he was
shutting the website down.
74. Ceglia relied on the foregoing misrepresentations in that after July 2004, he had
no reason to follow up on whether the website and the business interests of the General
Partnership was a success or failure or to determine whether Zuckerberg was continuing with the
activities of the General Partnership.
75. On or around July 29, 2004, having lulled Ceglia into believing the General
Partnership would go nowhere, Zuckerberg misappropriated the opportunity of the General
Partnership to expand the website and The Face Book project beyond Harvard University
students and the assets of the General Partnership and contributed those assets to Facebook, Inc.
and took the partnership opportunity for himself. Zuckerberg also knowingly concealed his
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contribution of the General Partnerships assets to Facebook, Inc., and the existence of
Facebook, Inc., from Ceglia despite his duty to disclose such information to Ceglia. Zuckerberg
did so for his own personal gain.
76. Zuckerbergs actions described above constitute constructive fraud.
77. As a result of Zuckerbergs constructive fraud, as a member of the General
Partnership, Ceglia has been deprived of his 50% interest in all consideration received by
Zuckerberg or promised to Zuckerberg in exchange for the General Partnerships assets,
including, but not limited to, cash, stock, stock options, restricted stock units and/or any other
consideration.
78. As a result of Zuckerbergs constructive fraud, all consideration received by him
or was promised to him in exchange for the General Partnerships assets, including, but not
limited to, cash, stock, stock options, restricted stock units and/or any other consideration, were
received, and continue to be held, by him in constructive trust for the benefit of the General
Partnership and Ceglia as a 50% owner of the General Partnership.
79. As a further result of Zuckerbergs actions, Ceglia has suffered actual damages in
an amount to be determined at trial.
FOURTH CLAIM FOR RELIEF
(Actual Fraud Against Zuckerberg)
80. Ceglia realleges paragraphs 1 through 79, inclusive, and by this reference
incorporates the same as though fully set forth herein.
81. As alleged above, starting in approximately April 2004 through July 2004,
Zuckerberg knowingly misrepresented to Ceglia that thefacebook.com was not successful, that
he was too busy to deal with the website, that he had lost interest in the website and that he was
shutting the website down.
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82. Ceglia relied on the foregoing misrepresentations in that after July 2004, he had
no reason to follow up on whether the website and the business interests of the General
Partnership was a success or failure or to determine whether Zuckerberg was continuing with the
activities of the General Partnership.
83. On or around July 29, 2004, having lulled Ceglia into believing the General
Partnership would go nowhere, Zuckerberg misappropriated the opportunity of the General
Partnership to expand the website and The Face Book project beyond Harvard University
students and the assets of the General Partnership and contributed those assets to Facebook, Inc.
and took the partnership opportunity for himself. Zuckerberg also knowingly concealed his
contribution of the General Partnerships assets to Facebook, Inc., and the existence of
Facebook, Inc., from Ceglia despite his duty to disclose such information to Ceglia. Zuckerberg
did so for his own personal gain.
84. Zuckerbergs actions described above constitute actual fraud.
85. As a result of Zuckerbergs fraud, as a member of the General Partnership, Ceglia
has been deprived of his 50% interest in all consideration received by Zuckerberg or promised to
Zuckerberg in exchange for the General Partnerships assets, including, but not limited to, cash,
stock, stock options, restricted stock units and/or any other consideration.
86. As a further result of Zuckerbergs actions, Ceglia has suffered actual damages in
an amount to be determined at trial.
FIFTH CLAIM FOR RELIEF
(Declaratory Relief Against Zuckerberg and Facebook, Inc.)
87. Ceglia realleges paragraphs 1 through 86, inclusive, and by this reference
incorporates the same as though fully set forth herein.
88. Ceglia contends that:
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a. Zuckerberg misappropriated the opportunities and the assets, including
business interests, of the General Partnership for himself;
b. Zuckerberg contributed the misappropriated assets of the General
Partnership to Facebook, Inc. and took the General Partnerships opportunity for himself;
c. In exchange for the misappropriated assets of the General Partnership that
Zuckerberg contributed to Facebook, Inc., Zuckerberg received and was promised to receive
cash, stock, stock options, restricted stock units and/or other consideration;
d. The cash, stock, stock options, restricted stock units and/or other
consideration property received by or promised to Zuckerberg in exchange for the
misappropriated assets were, and are, the property of the General Partnership; and
e. By virtue of his 50% ownership interest in the General Partnership, Ceglia
is entitled to receive 50% of the total equity interest in Facebook, Inc. received by, and promised
to Zuckerberg, including, but not limited to, stock, stock options and restricted stock units.
89. Ceglia is informed and believes and thereon alleges that Zuckerberg and
Facebook, Inc. dispute the foregoing contentions.
90. Consequently, an actual controversy and dispute exists between Ceglia and
Zuckerberg and Facebook, Inc. concerning the foregoing.
91. All necessary parties are before the Court so that it can grant declaratory relief.
92. Therefore, Ceglia is entitled to declaratory relief under 28 U.S.C. 2201 and
2202.
93. As a result of the foregoing dispute, a judicial determination of the parties rights
and obligations is necessary.
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SIXTH CLAIM FOR RELIEF
(Breach of Contract Against Zuckerberg)
94. Ceglia realleges paragraphs 1 through 93, inclusive, and by this reference
incorporates the same as though fully set forth herein.
95. The Agreement constituted a valid contract between Ceglia and Zuckerberg.
96. Ceglia has performed all conditions and covenants required of him under the
Agreement and was not, and is not, in breach of any terms of the Agreement.
97. Zuckerberg breached the Agreement on or about July 29, 2004, when he
incorporated or participated in the incorporation of Facebook, Inc. and failed to provide Ceglia
50% of the capital stock of Facebook, Inc.
98. As a result of Zuckerbergs breach of contract, Ceglia has suffered damages in an
amount to be proven at trial.
SEVENTH CLAIM FOR RELIEF
(Breach of the Implied Covenant of Good Faith and Fair Dealing Against Zuckerberg)
99. Ceglia realleges paragraphs 1 through 98, inclusive, and by this reference
incorporates the same as though fully set forth herein.
100. The Agreement constituted a valid contract between Ceglia and Zuckerberg.
101. Ceglia has performed all conditions and covenants required of him under the
Agreement and was not, and is not, in breach of any terms of the Agreement.
102. Zuckerberg breached the implied covenant of good faith and fair dealing arising
from the Agreement on or about July 29, 2004, when he incorporated or participated in the
incorporation of Facebook, Inc. and failed to provide Ceglia 50% of the capital stock of
Facebook, Inc.
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103. As a result of Zuckerbergs breach of contract, Ceglia has suffered damages in an
amount to be proven at trial.
WHEREFORE, Plaintiff PAUL D. CEGLIA, prays for the following relief:
A. For the First Claim for Relief
1. A declaration that:
a. The Agreement, together with the course of conduct between Zuckerberg
and Ceglia after the execution of the Agreement, as matter of law, created a general partnership
of which Ceglia was a 50% owner;
b. The respective contributions of Ceglia and Zuckerberg became, and would
become, property of the General Partnership; and
c. The fruits of those contributions such as the creation of the software,
program, the purchase and design of a suitable website, thefacebook.com, and business interests
derived from the expansion of that service or website to a larger audience also became
property of the General Partnership.
B. For the Second, Third and Fourth Claims for Relief
2. An accounting of all consideration received by Zuckerberg or was promised to
him in exchange for the General Partnerships opportunities and assets, including, but not limited
to, cash, stock, stock options, restricted stock units and/or any other consideration, and in
property or other interests into which the foregoing has been transmuted.
3. The imposition of a constructive trust for the benefit of the General Partnership
and Ceglia as a 50% owner of the General Partnership on all consideration received by
Zuckerberg or was promised to him in exchange for the General Partnerships assets, including,
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but not limited to, cash, stock, stock options, restricted stock units and/or any other
consideration, and in property or other interests into which the foregoing has been transmuted.
4. Damages according to proof.
5. Putative and exemplary damages.
C. For the Fifth Claim for Relief
6. A declaration that:
a. Zuckerberg misappropriated the opportunities and the assets, including
business interests, of the General Partnership for himself;
b. Zuckerberg contributed the misappropriated assets of the General
Partnership to Facebook, Inc. and took the General Partnerships opportunity for himself;
c. In exchange for the misappropriated assets of the General Partnership that
Zuckerberg contributed to Facebook, Inc., Zuckerberg received and was promised to receive
cash, stock, stock options, restricted stock units and/or other consideration;
d. The cash, stock, stock options, restricted stock units and/or other
consideration property received by or promised to Zuckerberg in exchange for the
misappropriated assets were, and are, the property of the General Partnership; and
e. By virtue of his 50% ownership interest in the General Partnership, Ceglia
is entitled to receive 50% of the total equity interest in Facebook, Inc. received by, and promised
to Zuckerberg, including, but not limited to, stock, stock options and restricted stock units.
D. For the Sixth and Seventh Claims for Relief
7. Damages according to proof.
E. For All Claims for Relief
8. All recoverable court costs and fees.
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9. Attorneys fees, expenses and costs, including expert witness fees, to the extent
available by law or contract.
10. Such other and further relief as the Court deems just and proper.
JURY DEMAND
Plaintiff demands trial by jury on all issues so triable.
Dated: New York, New York.
April 11, 2011

Respectfully submitted,
DLA PIPER LLP (US)
John Allcock (seeking admission)
Robert W. Brownlie (seeking admission)
Gerard A. Trippitelli (seeking admission)
By: /s/Christopher P. (Kip) Hall
Christopher P. (Kip) Hall
[email protected]
Carrie S. Parikh
[email protected]
1251 Avenue of the Americas, 27th Floor
New York, NY 10020-1104
212.335.4500
Attorneys for Plaintiff
PAUL D. CEGLIA

Paul Argentieri (co-counsel)
[email protected]
188 Main St.
Hornell, NY 14843
607.324.3232

Dennis C. Vacco (co-counsel)
[email protected]
Kevin J. Cross (co-counsel)
[email protected]
665 Main Street, Suite 300
Buffalo, NY 14203
716.853.5100


EAST\44501966.2
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