p>Peter Thiel is facing a growing firestorm. Although he will probably the first to tell you that he doesn’t need anyone to come to his defense, I am happy to do so. Thiel is the now famous investor who turned a $500,000 investment into Facebook into a more than $1 billion return. But that amazing success has also led to his criticism as many believe Thiel’s liquidation of a significant percentage of his shares in Facebook over the last 3 months should result in his resignation from Facebook’s board of directors. I believe this criticism is misplaced and ignores several key facts.
In 2004, Peter Thiel took a risk.He placed a $500,000 bet on the start-up social media company and in turn became a significant shareholder and confidant of the company’s founder and CEO, Mark Zuckerberg. Thiel also received a position on Facebook’s board of directors. Over the next 8 years, Thiel watched as Facebook became wildly successful – well beyond everyone’s imagination (except maybe Zuckerberg).
This past May, Facebook proceeded with its much anticipated initial public offering (“IPO”). Although the IPO was somewhat of a flop, it still made a lot of people a lot of money, including Thiel. In the initial IPO, Thiel sold more than half of his 44 million shares at a price of $38. A couple of weeks ago, Thiel sold 80 percent of his remaining stake in Facebook (at a price of approximately $20 a share). He had made more than $1 billion from these stock liquidations. However, instead of applauding Thiel for his success, he has faced disapproval for not stepping down from Facebook’s board of directors – a move that many believe should have followed his latest stock liquidation. A recent poll by the Silicon Valley Business Journal revealed that 67 percent of respondents felt that Thiel should step down from Facebook’s board. These critics believe that such a move is only appropriate when considering Facebook’s post-IPO struggles and the fact that Thiel has sold more than 89 percent of his stock in the company since May. However, such disparagement fails to recognize a few important facts about Thiel and his relationship with Facebook:
- Thiel was the first outside investor in Facebook – and other than Zuckerberg (and perhaps Facebook’s COO, Sheryl Sandberg), no one has more knowledge of Facebook’s vision and operations than Thiel;
- He still owns more than $100 million in Facebook stock; and
- Zuckerberg publicly admits that he greatly values Thiel’s advice and mentoring role.
However, perhaps the most notable fact to understand is that the potential of this type of situation was not hidden from Facebook’s IPO investors. Facebook is a very unique company in terms of structure. As part of the company’s pre-IPO filing, it was disclosed that Zuckerberg would continue to control 57.3 percent of the company post-IPO. This meant that Zuckerberg would retain final say on the affairs of the company, including its directors. If he didn’t want Thiel on his board of directors it could have been addressed through the IPO.
Interestingly enough, I am a big proponent of term limits for corporate board members. I believe such a practice is consistent with good corporate governance . Term limits mean new perspectives in the boardroom and often give way to progress and success for the company. If in a year or two from now, Facebook’s stock is still struggling, then certainly Thiel should give serious consideration to stepping down from Facebook’s board to make way for new blood. However, now more than ever Facebook, and its alter-ego, Zuckerberg, need Thiel and his guidance.
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