Business Venture Blog
This is where we post about business, ventures, law, and business venture law.
Anything interesting, really.
Anything interesting, really.
Why did founders who sold their companies to Facebook leave?
Facebook was launched on February 4, 2004 by Mark Zuckerberg along with fellow Harvard College students and roommates. Over the years, Facebook rapidly expanded and most recently had more than 2.2 billion monthly active users as of January 2018. With that massive success, Facebook went on to acquire a variety of companies, most notably, Instagram, Oculus and WhatsApp. Each of these companies achieved a lucrative exit - Instagram was sold for 1 billion, Oculus for 3 billion and WhatsApp for 19 billion. Yet, in the past year, founders from all 3 respective companies left the social media giant. Why?
Kevin Systrom and co-founder Mike Krieger worked to create a social photo-sharing app named Instagram. It launched in 2010 and, less than two years later, was sold to Facebook for 1 billion. Yet, in September of 2018, both co-founders had announced their departure and resignation from Facebook. The duo, with a heavy dose of diplomacy, explained their resignation by stating that they required some, “time off to explore our curiosity and creativity again…” Publicly it seems that they had a friendly and mutual separation, but there have been reports about a brewing tension leading up to the founders' decision. A report by Bloomberg states that they had a disagreement about the direction the app would take, particularly around the time of Instagram Stories. If this were true, it could explain the substantial tension that led to the departure of the two original founders. I am sure that Kevin Systrom and Mike Krieger were aware that with the sale they’d lose control and direction of Instagram. It must’ve been difficult for them to make that decision but with a successful exit, Systrom and Krieger will no doubt be fine.
Brendan Iribe was a co-founder and former CEO of Oculus – a company that focuses on virtual reality (VR). Recently, Iribe announced that he was also leaving Facebook due to “fundamental different views on the future…” Much like the Instagram founders before the acquisition, Iribe had consistent controlon over the future of his company. However, after an acquisition by Facebook, he lost that control over the direction and future of Oculus. As a side note, both the founders from Instagram and Oculus have similar resignation statements like, “recharge, reflect and be creative.” Do they have the same publicist? This is just a side note, but it goes to show that many internal disagreements are not privy to the public eye. As with the founders of Instagram, Brendan Iribe will be fine and will no doubt come up with something new in the future.
The separation between Co-founder and CEO Jan Koum of WhatsApp and Facebook have been the most animated. Per the Washington Post, Koum left Facebook amid an argument over data privacy and the direction of the app’s business model. However, Koum suggested through his own press release that he took issue with Facebook’s approach to data as Koum is a devout privacy advocate. This point of contention seems to be one of the reasons why Koum decided to leave. Again, as per the other Founders, he had limited control over the direction of WhatsApp after selling to Facebook. Furthermore, the most notable point of their contention is when Koum tweeted, “it's time” along with the hashtag “#deletefacebook.” Koum out of all the previous Founders provided a little insight on the degree of conflict between the two parties.
The commonality between the founders of each respective company is that they had a substantial disagreement with the direction Facebook had with their original platform. Each left with a statement expressing their irrevocable differences with a diplomatic and filtered response. Though, with Koum, we could witness and extract the degree of conflict through his tweet. Furthermore, with the number of founders leaving in a relatively short period, it could indicate a possible issue with Facebook. Why aren’t they able to keep these founders? Is Mark Zuckerberg difficult to work with? Is Facebook struggling and in a desperation mode? All these questions are beyond the scope of this post, but they are valid questions for considerations by shareholders and the public. The purpose of this blog was to highlight the reasons why a founder may leave a conglomerate like Facebook after achieving a successful exit and acquisition.
Vikas Chadha is a member of the BLG Business Venture Clinic, and is a 2nd year student at the Faculty of Law, University of Calgary.