When Facebook was young: the early years

Steven Loeb · February 9, 2016 · Short URL: https://vator.tv/n/3fb4

70,000 users in 2 months; At 5 months - 100,000 users and first $500k angel round

One of the best movies I saw this past summer was Straight Outta Compton, which chronicled the humble beginnings of major stars Dr. Dre and Ice Cube.

Stories like these are always well received, because it reminds us that anyone, regardless of pedigree and environment, can rise above the noise and have great influence. They show us the value of being resilient, persistent and committed. If we can follow their footsteps, maybe we too can have similar success.

That's why we're starting a new series called: When they were young. It's a look back at the modest days of startups, how they evolved in their first few years, and what traction they had at the time. In the end, we hope to have a good glimpse into what great startups looked like in their first three years. 

So, let's begin with Facebook.

Facebook really started out as Facemash in October 2003 in Mark Zuckerberg's Harvard dorm room. It was an "hot or not" type website aimed only at other Harvard students. The site was shut down by administrators, and Zuckerberg even faced some potential criminal charges over the site including violating copyrights, breach of security, and violating individual privacy, since he had stolen the pictures that he used on the service. 

Facebook's First Year ---

Launched: February 4, 2004 as TheFacebook

Founded by: Mark Zuckerberg, age 19; Eduardo Saverin, age 21; Andrew McCollum, age 20; Dustin Moskovitz, age 19; Chris Hughes, age 20

Initial Company Description: "Expanding online directory that connects students, alumni, faculty and staff through social networks at colleges and universities," according to an early pitch deck, created in the Spring of 2004, from Saverin.

Traction - at two months: 70,000 users across 20 colleges, including Columbia, Yale, Stanford, Cornell, Brown, Princeton, Duke, Georgetown, NYU and MIT, according to Saverin's deck. In the deck, the company also revealed its plan to launch in 200 colleges within the next six months.

First investment - at 5 to 6 months: Summer of 2004, Peter Thiel bought over 10 percent of the company, while also joining Facebook's board of directors. Thiel invested $500,000 at a $5 million valuation. Facebook had 100,000 users, Thiel confirmed at Vator's Post Seed conference in December 2014. "So the Facebook investment in summer of 2004 was a $5 million valuation. It was already on 20 college campuses, with 100,000 people signed up, it would launch up to 100 more colleges in the Fall. If you had those metrics today, I think the valuation probably would be an order of magnitude higher. Probably $50 million or $100 million," he said.

Thiel came to invest in Facebook, according to David Kirkpatrick's book The Facebook Effect, through Reid Hoffman, who declined to invest in the company due to a potential conflict of interest with LinkedIn, but refered Thiel, whom he had worked with at PayPal, to invest instead. Over the rest of the year, Facebook expanded to most of the universities in the U.S.

First business model- Advertising: The company sold advertising, with most of its revenue coming from flyers, "which were mostly purchased by students or small local businesses for $10-$40 per day who wanted to target an ad to a specific college campus," according to Kevin Colleran, one of the company's first 10 employees, writing in Quora in 2011.  

Ezra Callahan (one of Facebook's first employees) had sold several ads on his own to companies like Cutco Knives and College Pro Painters to start generating revenue for the company," according to Colleran.

Revenue milestone - at six months: Facebook starts selling ads at $1500 a day. Below is an ad order from Paramount Pictures in August 2004 for $15,000 for about 10 days.

Traction - at 8 months: Facebook has 1.5 million users in over 400 schools, with 40 million daily pageviews, and 1.2 billion monthly pageviews, according to an October 2004 pitch deck, by Saverin, along with Josh Iverson, who worked at ad sales agency Y2M.  

Facebook's first dashboard and advertisements: Here's one of Facebook's earliest ads looks like. Frankly, it's kind of terrible. Also, remember back in the day when the site used to have that weird guy looking at you in the upper left hand corner? It's Al Pacino.

Facebook's Second Year ------

Series A (First institutional Round) - at 1 yr and 2 months: In March of 2005 the company hired Tricia Black as its first VP of Sales, and in April, only a little over a year after it launched, Facebook took it's Series A funding, raising $12.7 million from Accel Partners, valuing the company at $98 million. By then it had nearly five million users across 1,500 campuses. 

First Major Broadcast Interview: Mark Zuckerberg sat down with Vator's founder and CEO Bambi Francisco in May of that year (while she was at CBS MarketWatch), right after that funding was raised. Wearing a shirt that said, ""My mom thinks I'm cool," he talked about what the future of ads on the site would look like. You can see that video at the top of this article. 

"Advertising is the model, but I don't think we're arrived at what the final advertising solution is going to be," he said. "Right now we're more focused on just building out the site and building features and right now almost 70 percent of our users come back every day, which is kind of ridiculous. And if we can keep that up for any period of time, then that's awesome. I don't necessarily expect to be able to keep that up permanently but, if we can keep that going, then that's really good. So that's the focus now."

As well all know now, Facebook did figure out its advertising model, and now makes nearly all of its money from that sector.

Facebook posted revenue of $5.8 billion for the fourth quarter of 2015, of whch $5.6  billion came from advertising, an increase of 57 percent year over year. Mobile accounted for 80 percent of advertising revenue.  For the full year 2015, Facebook posted revenue of $12.5 billion.

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