Facebook is always going to be thought of in Boston as “the other one that got away.”
Like Microsoft in the 1970s, Facebook was, in the first decade of the 2000s, gestated on the Harvard campus, and key moments of its early history took place in Harvard Square. Bill Gates and Paul Allen had been inspired by an issue of Popular Mechanics they purchased at Out of Town News featuring an early personal computer, and Mark Zuckerberg and Eduardo Saverin had their first meeting with a venture capitalist at Henrietta’s Table.
Both companies, of course, left Massachusetts, creating jobs and enormous wealth in Seattle and Palo Alto, respectively.
On the verge of the Facebook’s long-anticipated IPO filing, I’ve been thinking both about the company’s Cambridge roots, and also some local people and institutions who will make bags of money from the public offering.
The money first...
A Boston-area VC firm, Greylock Partners, one of the grand-daddies of the venture capital industry, led Facebook’s second major round of funding in April 2006. The round gave Facebook $27 million in funding, and valued the company — which at the time had just seven million users — at roughly $500 million. (As of January 2012, the site had about 800 million users.)
”That was a way out-on-a-limb investment — a very controversial deal,” one local venture capitalist told me this morning. “There were arguments within Greylock about why it could be a bad investment.”
While the Greylock investment in Facebook’s 2006 round was led by David Sze, a partner in the firm’s Silicon Valley office, another Boston VC told me that Bill Helman, a Greylock partner in Waltham, did some key analysis that showed “that Facebook had a reasonable amount of revenue, and was growing like a weed. His position was, ‘I can’t guarantee you 100 percent that we aren’t going to lose money.’ Of course, no one would’ve thought the up-side was going to turn out to be what it was.” Greylock’s stake will likely be worth at least a billion dollars after Facebook’s IPO.
Who’ll get a share of that return? Harvard’s endowment, for one, which has been an investor in Greylock since the firm’s founding in 1965. (Ironically, Harvard could’ve made much more: the university’s money managers had been consistent supporters of Accel Partners, the Silicon Valley firm that led Facebook’s very first round of venture capital funding in 2005, but decided not to participate in the Accel fund that made the Facebook deal.) Amos Hostetter, the Continental Cablevision founder, is another who’ll benefit. Bill Kaiser and Bill Helman, the two investing partners in Greylock’s Massachusetts office, will pocket handsome sums, as will Henry McCance, Greylock’s chairman emeritus. (Helman sits on the board of the Harvard Management Company, which oversees Harvard’s endowment.) In 2009, three years after making the Facebook investment, Greylock moved its headquarters from Massachusetts to Silicon Valley, and the firm’s center of gravity is most definitely out west now.
The guy who led that first round of Facebook funding in 2005, Jim Breyer of Accel, grew up in Natick and Weston; his parents worked in the Route 128 tech ecosystem. Breyer graduated from Harvard Business School, and he is also a minority owner of the Celtics (as is Helman of Greylock.) Accel now holds the second-biggest stake in Facebook, after Zuckerberg.
(Globe reporter Beth Healy points out that local financial services firms like Fidelity Investments and John Hancock also hold blocks of Facebook stock, but well after those early venture capital rounds, and at a much higher price.)
Larry Bohn of General Catalyst told me that he thinks Boston VCs today are “more vigilant about not wanting to miss the next Facebook. They’re paying more attention to things that are scaling fast, and were built by young founders.” General Catalyst is based in Harvard Square.
And also, some history...
Here’s a 2004 Harvard Crimson article about Facebook, which was then known as TheFacebook.
Here’s a column I wrote in 2007, when I decided to find out whether Zuckerberg and Saverin had met with any Boston venture capitalists before they took their start-up to Palo Alto. Incredibly, Waltham-based Battery Ventures started talking with Zuck when the site had only 1,000 or 2,000 users.
Larry Cheng was the Harvard alum who sourced the Facebook deal for Battery; he’s now an investor at Volition Capital in Boston. He wrote a great post in 2009 reflecting on his meetings with Zuckerberg and Saverin...and the ride he gave them back from Waltham’s Mount Money after a meeting at Battery.