Microsoft’s investment in Facebook at a $15 billion valuation was one of the most buzzed about internet business deals in years given the unprecedented valuation assigned to Facebook shares. However most people are unaware that the deal took place after Mark Zuckerberg turned down an acquisition offer by Microsoft for more than the $15 billion valuation it invested at.

The full details of Microsoft’s negotiations are revealed in David Kirkpatrick’s exceptionally well written and must read book, “The Facebook Effect“. Here are a few of the most significant components of the conversation with Microsoft:

• The conversation between the two companies began around having Microsoft help with selling display advertising internationally.
• Oven Van Natta, then Chief Operating Officer of Facebook, pitted Microsoft against Google in locking in an international ad deal.
• Both Microsoft and Google were interested in acquiring the company, Microsoft being the more interested suitor, with Steve Ballmer even offering to buy the company outright for $15 billion. The potential acquisition would take place over many years, and the share purchase price would also most likely increase in value, meaning Microsoft would pay more than $15 billion if Facebook accepted.
• Facebook got the ability to manage (“and innovate on”) 15 percent of the domestic display ads
• Microsoft’s investment of $240 million in Facebook at a $15 billion valuation was alongside Li Ka-shing, who put in $60 million at the same valuation. The investment of Li was critical as to avoid Microsoft potentially having to write down a loss on its books from the investment.
• Microsoft received “1X nonparticipation liquidation preference” shares. As David Kirkpatrick explains, “if Facebook were ever sold outright, Microsoft would get back either its actual cash outlay of $240 million or 1.6 percent of the purchase price, whichever was larger.” However the company could not block further investments at lower valuations.
• Facebook was prohibited from taking money from Google as part of Microsoft’s investment.
• The investment round took place right before the crash at the advice of Peter Thiel, who told Mark Zuckerberg that “now would be a good time to raise money.”

In addition to sealing an ad sales deal with Facebook, the company also invested at the astonishing valuation of $15 billion. Additionally, the company helped accelerate the company’s growth through a lesser known deal: the ending of Facebook’s email being occasionally redirected to the spam bin on Hotmail. As David Kirkpatrick writes:

Hotmail was the largest source by far of such user referrals. But it interpreted many email invitations coming in from Facebook as spam—unwanted commercial messages. On days when Hotmail blocked the use of the contact importer, Facebook’s user growth dropped as much as 70 percent, says Moskovitz. So in the midst of the ad talks, uber-negotiator Van Natta, Moskovitz, and D’Angelo trooped up to Microsoft headquarters in Redmond, Washington, to iron out the conflict. “This was absolutely not something we could walk away from,” says Moskovitz. After a day or so of talks, Van Natta got Microsoft to stop interfering with the imports even though Facebook conceded almost nothing in return. Microsoft wanted the international ad deal.

One thing that’s clear was that in contrast to previous discussions (mostly with Yahoo!) in which Mark Zuckerberg had second thoughts about whether or not to sell the company, he was not interested in selling this time around. He had become steadfast in building what has become a brand used by close to 500 million people worldwide (and growing).