How Mark Zuckerberg Changed Me

Stuart J. Ellman Jul 18, 2011 Back to blog

When I was in business school in 1991, the famed investor Richard Rainwater came to speak to my class.  He said many things, but one changed my life.  He said, “I got rich by selling too early.”  That really stuck with me.  If you have ridden one investment up to a good return (5x or 10x), why be greedy and risk losing it all for some extra gain?   That really made sense to me at a very fundamental level and I internalized it.  My partner-in-crime, Jim Robinson, learned the same thing from his experience as a vc at Hambrecht and Quist.

When I became a venture capitalist with RRE in the mid 1990’s, I had my first test of this philosophy.  We had invested in series B and C deals in Silicon Valley with other much more well established venture capitalists.   These deals went public very soon after our investments.  We had a chance to sell into the offerings or hold the stocks.  Almost all of our co-investors held their stock.   I quoted Richard Rainwater and Jim was in complete lockstep with me.  We already had a 5 to 10x return in under 18 months.  Why be greedy.  Also, we were a brand new firm and LPs love getting money back quickly.  So, we sold as soon as we could.  On almost every one of those stocks, we came out much better than if we had  held (yes, there was a market crash that came up quickly).  
Fast forward to 2004.  I had hired this brilliant young guy from Harvard, Sam Lessin, as a summer analyst.   Sam said to me that I have to speak to this classmate of his, Mark Zuckerberg, about his company,  I got on the phone with Mark and Mark was very sure about himself.  I was thinking, I have been a vc for a decade, teach it at Columbia B School,  raised a few funds and had sat on lots of vc boards.  Here was Mark, a 21 year old college student, and he basically told me there wasn’t much I could help him with.  I was polite, offered to be helpful anyway.  I was not surprised when he raised from Jim Breyer at what then seemed like a crazy high price for a series A.  Mark knew what he wanted and knew what he had.
So, here I am in 2011.  Two entrepreneurs that my firm backed,  Sam Lessin and Justin Shaffer, had their companies acquired by Facebook.  I couldn’t be happier. They are both senior execs at FB.  Given where the stock is trading on secondary markets, it is not a stretch to assume it will go public at $100b and trade up from there.  Part of my mind keeps quoting Richard Rainwater; it has had a great run.  But Mark has changed me.  I intend to be a holder, not a seller, of FB stock.  Why?  Because from that self assured 21 year old I spoke to on the phone, Mark has done everything right from this vc’s handbook.
He created a compelling value proposition that brought the world online in a viral fashion.  That is very hard to do, but it is what he did after that that impresses me the most.   He hired all of the smartest young people I know to manage the business lines.  He did not overpay for vanity acquisitions.  He listens to the people that work for him.  He does his homework and research on each area he wants to go after.  He works tirelessly.  He has the respect of all those that work for him and with him.  He recognizes that with 700mm users, he has the entry point to the internet and, as long as he continues to hire and delegate, he can dominate advertising, payments, gaming, communications, and reputation.  To me, that means the most valuable property on the net.  So, I am a long term holder.