The footnote in Twitter’s IPO filing that tells a tale of civil war among its founders

All’s well that ends with an IPO.
All’s well that ends with an IPO.
Image: Bart Teeuwisse
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Deep into Twitter’s IPO filing, in tiny text on pages 144 and 145, there’s a curious footnote about two of the company’s founders, Ev Williams and Jack Dorsey:

Mr. Williams and Mr. Dorsey are parties to a voting agreement that will terminate in connection with this offering. Under this agreement, Mr. Dorsey granted Mr. Williams a proxy to vote the shares held by him or his transferees.

Why would Dorsey, who has been chairman of Twitter since October 2008, give Williams control of his stake in the company? The filing doesn’t explain, but new details suggest Dorsey didn’t have much choice after he lost a power struggle with Williams and Twitter’s board of directors.

In 2008, Dorsey was president and CEO of Twitter, which had exploded from a side project of a struggling startup into a fast-growing social media phenomenon. But the company was struggling to keep up with its growth, and its investors were frustrated by mounting expenses that weren’t accompanied by any revenue. (Twitter didn’t earn any money at all until 2009, according to its IPO filing.)

Williams, who had originally financed Twitter out of his own pockets, was and remains the company’s largest shareholder. And because he had the support of other large investors at the time, Williams effectively controlled the company, even though he wasn’t in charge. In the summer of 2008, Williams told Dorsey he had major problems with the way Twitter was being run, according to an excerpt of a new book about the company by New York Times reporter Nick Bilton.

“You can either be a dressmaker or the CEO of Twitter,” Williams reportedly said to Dorsey, who aspired to be a fashion designer. “But you can’t be both.”

A few months later, Williams decided he would take over as CEO. According to Bilton’s book, Dorsey was offered a severance package of $200,000, additional shares of the company, and a role as chairman of the board. The intention was to make it look like Dorsey wasn’t being fired so much as switching places with Williams.

But there was a big caveat, which would remain secret until Twitter publicly filed for an initial public offering last week. Dorsey would be a “silent” chairman with no rights to vote his shares in the company. Instead, Williams would control Dorsey’s stake until Twitter was sold or went public. (It’s not clear how much of the company Dorsey owned at the time; he currently has a 4.9% stake.)

“It was like being punched in the stomach,” Dorsey would later say about his ousting. He exacted revenge, in a sense, about two years later, when Williams was replaced as CEO by Dick Costolo, who brought Dorsey back into an active role at Twitter. But his voting rights remained with Williams.

The relationship between Dorsey and Williams, by all accounts, remains chilly. But it was significant that the two of them—along with another co-founder, Biz Stone—showed up at Twitter headquarters on Oct. 3, the day the company filed its IPO prospectus. They held a question-and-answer session at an all-staff meeting, known internally as “Tea Time.” Stone sat between Williams and Dorsey, but everyone was friendly, and there were no signs of tension, according to several staff members who attended.

Then the co-founders went back to their day jobs elsewhere in San Francisco, running companies they have founded post-Twitter. Dorsey is CEO of mobile payments startup Square; Williams runs a publishing startup called Medium.

A few hours later, Twitter filed papers to go public.

The photo above is by Bart Teeuwisse and used under a Creative Commons license.