$500,000 for 10.2% · August 2004
Peter Thiel
Facebook, 2004
The most-cited angel investment in modern technology, and — because of what happened at the IPO — also the best available lesson in the cost of selling a compounding position early.
What happened
In August 2004 Peter Thiel became Facebook's first outside investor, putting in $500,000 for a reported 10.2% of the company. The structure was a convertible loan that converted on the company hitting agreed milestones, and it was made when Facebook was a college product operating out of a rented house.
The entry price is the part everyone repeats. The exit is the part worth studying. Following the May 2012 initial public offering, Thiel sold the large majority of his holding, realising a sum reported at around $1bn in total against the original $500,000.
By any normal standard that is a spectacular outcome — roughly two thousand times the money. It is also, as later reporting has enjoyed pointing out, a small fraction of what the same stake would have represented had it been held, because Facebook's value multiplied many times over in the decade that followed.
We are careful with that second number. What the stake "would be worth" is a fact about a decision, not a return anybody received, and the retained-stake counterfactual ignores the tax, concentration risk and portfolio obligations that actually govern such a decision.
Where sources disagree
What we do not claim
Reported realisation figures differ depending on which tranches of sales are counted and over what period. The widely repeated "would be worth $X today" numbers vary enormously with the date they were calculated and are counterfactual rather than realised; we describe them as such.
For your own cheque
What an angel takes from this
- This is the canonical illustration of the point our portfolio maths section makes in the abstract: the position that pays for everything is the one you are most tempted to sell, because it is the only one that has become large enough to be worth selling.
- It is also a fair reminder that selling is not irrational. A single position at that concentration, with tax due and other obligations to meet, is a genuine risk-management problem rather than a failure of nerve. The lesson for a small angel is not "never sell" but "decide the rule in advance", which is exactly what a written sell rule is for.
- The structural detail worth copying is the milestone-linked convertible. Thiel did not have to price a company that could not be priced; he set terms that converted when the company had demonstrated something. That is what a well-drafted cap and conversion trigger do.
Checked, not remembered
Sources
Every figure on this page is traceable to published reporting. Where credible sources disagree we say so above rather than picking the most quotable number, and we do not state what a stake is “worth today” — that moves with the share price and is stale the moment it is written.
The mechanics