This is the story of a couple of struggling computer entrepreneurs who met in a London bar and moved to California without enough money to pay for their accommodation. Michael Birch and his wife Xochi are now expected to make hundreds of millions of pounds from the sale of one of the hottest properties on the internet.

With 40m users worldwide, the Bebo social networking site created by the 37-year-old Brit and his 36-year-old Californian wife in 2005 is ranked as the second most popular in the UK and the third globally, after MySpace and Facebook. Its sale last week for £417m to the AOL multi-media company will net the Birches some £295m for their 70% stake.

Not that money was ever the be-all and end-all, Birch always maintained. Just as well, for the couple were almost broke when they moved to San Francisco in 2002. “We kicked my wife’s parents out of their bedroom and lived there for three months,” he recalled.

Softly spoken and laidback, with long hair and a penchant for humorous T-shirts, Birch is no longer dependent on his American inlaws’ hospitality. He has built them a house near his home in the city, where he lives with Xochi (an Aztec name) and their children Isabella, 8, and Joseph, 6. He remains defiantly British, driving a Range Rover and sticking to his Hertfordshire vowels.

Bebo’s success reflects the explosion of social networking, particularly among the young. Bebo users - or Beboers - log on to a site that is part diary, part contacts book and part social club. They are given their own mini home page on which they showcase themselves, list their favourite bands and movies or simply wallow in the latest gossip. They send e-mails, exchange voice messages, share photos and sometimes trade insults.

With Birch acting as chief executive and programmer, Xochi handled the finance and customer relations. She has acknowledged that they had no business qualifications nor any grasp of marketing, relying on word-of-mouth for the website’s popularity: “We just had blind faith that if we made something very, very popular there would have to be some way of making some money out of it. We didn’t sit down and say: we have to make millions.”

Such humility is typical of “a really great family”, said their friend Judith Clegg, the founder of Glasshouse, a London forum for entrepreneurs: “It’s easy to look at this deal and think that these people got lucky. But actually years of hard work have gone into this business. There were times when they might have given up and taken a paid job.”

It is very much a family concern. Birch’s brother Paul, who lives in west London, co-founded Bebo, and their sister Hilary worked on the website’s child safety side. The increased risks of encountering sexual predators on the internet persuaded Bebo to put in place a number of safety controls, including a button to file reports on those acting suspiciously.

Staff loyalty is another key to the Birches’ success. Few have left the company since it began. Birch attracted personnel from veterans of the internet such as Google, Yahoo! and MSN.

Birch always laughed off takeover rumours; he was having fun: “There’s a lot of joy in it.” But his working day began at 6.30am and he admitted to “a degree of guilt for not spending more time with the kids”. At weekends he and Xochi take them to the zoo or drive up to Lake Tahoe. At least he has no hobbies to distract him further, spending his spare time watching television or rented DVDs: “It’s a pretty boring life.”

Birch was born on July 7, 1970, an inventor’s son, and grew up in the Hertfordshire village of Cuffley. At school in Cheshunt he was a bright child who excelled at chess but lacked ambition. He said later: “I used to wonder what I’d do in life if computers hadn’t been invented. I don’t think I’d be good at much else.”

He was no more motivated after graduating with a degree in physics from Imperial College London, where he met Xochi at the university’s Southside bar. The dismal jobs market at the time prompted him to begin his career in the unlikely setting of Zurich Insurance. Computer programming and insurance struck him as the two most boring activities imaginable: “I was frustrated by the environment because it was very bureaucratic. But I found out that I really liked the computing side of it.”

Birch stayed in insurance for six years before becoming a freelance IT contractor. He gave up work to concentrate on his own ventures after Xochi gave birth to their first child. The rising property market enabled the couple to remortgage their flat in Richmond, southwest London, and ride out their initial disappointments.

Their first three dotcom start-ups were unsuccessful. Then the Birches hit a lucky streak. Their first success came with BirthdayAlarm.com, initially a simple alert service that evolved into an e-cards business. By the time the Birches decided to act on a long-standing plan to join Xochi’s parents, BirthdayAlarm was not generating much revenue, although it eventually began paying off and enabled the inlaws to move back into their bedroom and the young couple to rent “a really terrible apartment”.

The swift evolution of the internet captured their imaginations. “When social networking came along I just thought: wow, something to do with computers and it’s fun. This was invented for me,” Birch said. Envious of the success of Friends Reunited, he was galvinised into action by the appearance of Friendster, a social neworking site launched in 2002. After studying it for half an hour he began coding his own site, which went live 13 days later. Named Ringo, it gained 30,000 members within days.

However, the stress began to tell: “There was myself and my wife in this 120 sq ft office in the suburbs of San Francisco, trying to cope with the amount of traffic we were getting.” Overwhelmed and lacking finance, they sold Ringo within six months.

They had absorbed crucial lessons when it came to launching Bebo. They bought the domain name for £4,000, selecting it because it was short, sounded fun and “it had to be meaningless like Yahoo! or Google so it could develop its own meaning”. Soon Bebo was retrofitted as an acronym for “Blog Early, Blog Often”.

The Birches had the benefit of hindsight. “We managed to apply everything we learnt from Ringo and analysed what was and wasn’t working on MySpace,” Birch said. However, the first version of Bebo, aimed primarily at thirtysomethings, stalled. “I wanted it to be a place where I could exchange photos and keep in touch with my family in England,” Birch said. “But you can’t control who finds websites popular. Teenagers are always the early adopters online.”

The site took off when it was relaunched six months later and focused on schools and universities in America, Britain, Ireland, Canada, Australia and New Zealand.

Despite Birch’s denials, Xochi confessed in 2006 that they had been sorely tempted to sell up. Last week the couple finally acquiesced. The takeover is the latest in a string of such deals. In 2005 News Corporation, parent company of The Sunday Times, bought MySpace for £285m, “the deal of the century” according to Birch, and last year the technology giant Microsoft took a £118m stake in Facebook.

And next? If the internet did not exist, Birch would be running a chain of bars, according to Stan Chudnovsky, who befriended the couple when his company Tickle.com bought the Ringo website. Curiously Birch once seemed to be thinking along the same lines, comparing a good website to “walking into a bar when it’s vibrant and buzzing”. If he could just invent virtual drinking in digital space he might be on to another winner.