A thousand millionaires
San Francisco - Travelling to space or embarking on an
expedition to excavate lost Mayan ruins are normally the stuff of adventure
But for employees of Facebook, these and other lavish dreams
are moving closer to reality as the world’s No 1 online social network prepares
for a blockbuster initial public offering that could create at least a thousand
The most anticipated stock market debut of 2012 is expected
to value Facebook at as much as $100bn, which would top just about any of
Silicon Valley's most celebrated coming-out parties, from Netscape to Google.
While weak financial markets could postpone or downsize any
IPO, even the most conservative market watchers say Facebook seems destined to
set a new benchmark in a region famous for minting fortunes, with even the
rank-and-file employees reaping millions of dollars.
Facebook employees past and present are already hatching
plans on how to spend their anticipated new wealth, even as securities
regulations typically prevent employee stock options from being cashed in until
after a six-month lock-up period.
"There's been discussions of sort of bucket list ideas
that people are putting together of things they always wanted to do and now
we'll be able to do it," said one former employee who had joined Facebook
in 2005, shortly after it was founded.
He is looking into booking a trip to space that would cost
$200 000 or more with Virgin Galactic or one of the other companies working on
future space tourism. That's chump change when he expects his shares in
Facebook to be worth some $50m.
"If that IPO bell happens, then I will definitely put
money down," said the person, who declined to be identified because he did
not want to draw attention to his financial status, given the antiglitz ethos
of many people in Silicon Valley. "It's been a childhood dream," he
said of space travel.
Others are thinking less science fiction and more
"Indiana Jones". A group of current and former Facebook workers has
begun laying the groundwork for an expedition to Mexico that sounds more suited
to characters from the Steven Spielberg film Raiders of the Lost Ark than to
the computer geeks famously portrayed in the movie about Facebook, The Social
Initially, the group wanted to organise its own jungle
expedition to excavate a relatively untouched site of Mayan ruins, according to
people familiar with the matter who also did not want to court notoriety by
being identified in this story. After some debate earlier this year, they are
now looking at partnering with an existing archeological programme.
Founded in a Harvard dorm room in 2004 by Mark Zuckerberg
and his friends, Facebook has grown into the world's biggest social network
with over 800 million members and revenue of $1.6bn in the first half of 2011.
Information about its ownership structure or employee
compensation packages is hard to come by, since the still-private company
discloses very little. Facebook declined to comment for this story.
It is clear that Facebook's earliest employees, who were
given ownership stakes, and early venture capital investors - such as Accel
Partners, Greylock Partners and Paypal cofounder Peter Thiel - will see the
biggest paydays. Zuckerberg is estimated to own a little over a fifth of the
company, according to The Facebook Effect author David Kirkpatrick.
But the wealth will trickle down to engineers, salespeople
and other staffers who later joined the company, since most employees receive
salary plus some kind of equity-based compensation, such as restricted stock
units or stock options.
Facebook's headcount has swelled from 700 employees in late
2008 to more than 3 000 today. Given its generous use of equity-based
compensation in past years, people familiar with Facebook say that even by
conservative estimates there are likely to be well over a thousand people
looking at million dollar-plus paydays after the company goes public.
"There will be thousands of millionaires," said a
former in-house recruiter at Facebook, who did not want to be identified
because of confidentiality agreements.
Lou Kerner, the head of private trading at Liquidnet,
estimates that Facebook now has roughly 2.5 billion shares outstanding, which
would translate to a per-share price of $40 at a $100bn valuation.
Engineers are the most richly rewarded among the rank and
file. The former Facebook recruiter said as recently as 2009, the company gave
an engineer with 15 years' experience options to buy about 65 000 shares at
about $6 per share.
After a 5-for-1 stock split in October 2010, the engineer
would now have the right to buy around 325 000 shares. Assuming a $40 share
price, that would yield a profit of more than $12m.
According to another former Facebook employee, it was not
unusual for the company to offer some executive-level hires up to 100 000
restricted shares as recently as three years ago.
The company has since cut back on equity compensation for
new hires. Managers hired one year ago received 2 000 to 30 000 restricted
shares depending on the job function, according to another recruiter who had
also worked for Facebook.
The company has also been stingier in handing out equity to
noncore employees - so there may not be as many of the dazzling rags-to-riches
stories that were commonplace at the time of the Google IPO, when in-house
chefs and at least one masseuse struck gold with options.
Facebook has its share of chefs - including head chef Josef
Desimone who was lured away from Google - and other support staff, but it's not
clear how many of them were awarded share options.
These days, "Google and Facebook are notorious for
hiring contract employees they don't have to give equity to", said the
second former Facebook recruiter.
Haves and have-nots
Facebook's IPO has been long anticipated, but veterans of
other startups that have gone public say the period after could be fraught with
Some employees could grow jealous over colleagues with more
stock, while others might look down on peers who are too quick to sell,
questioning their loyalty to the company.
And there is always the risk that talented staff would leave
with their newfound wealth to make their own mark in the technology world by
becoming entrepreneurs or investing in other promising startups.
Some Facebook employees have already left the company to do
that, selling their shares ahead of the IPO on private exchanges such as those
run by SecondMarket or SharesPost.
One such person is engineer Karel Baloun, who joined the
social network in 2005 and left just over a year later to start his own online
network for commodities-futures traders, funded by a tidy package of stock
options. It failed and Baloun laments that he could have made a lot more money
if he had stayed at Facebook.
But he is philosophical, saying that the equity windfall
gave him the cushion to do new things.
"It's really wonderful being able to choose your work
based on the meaning of it, not the size of your salary," said Baloun, now
chief technology officer at mobile-commerce company Leap Commerce. "I have
two kids, and I couldn't do it if I didn't have some savings from this
Baloun said he has sold about half his Facebook shares and
is holding on to the rest until after the IPO. "I will buy a house,"
Wealth managers salivate
For many of Facebook's staffers, the IPO will provide the means
to pay off school loans and buy a house or new car. Home prices in the San
Francisco Bay Area have typically been lofty, but many homeowners and real
estate agents are eagerly anticipating a surge of new buyers flush with money
from the IPOs of Facebook and other web companies.
"Watch for Facebook proceeds to buy Palo Alto real
estate," said David Cowan, a venture capitalist at Bessemer Venture
Partners who backed social network LinkedIn among other companies.
Wealth managers and investment advisers are also looking to
win new clients from the Facebook crowd.
"A lot of them are going to be multimillionaires at 30
and live to be 100. That means creating a 70-year plan, which is unheard
of," said John Valentine of Valentine Capital Asset Management in San
Ramon, California, noting that his average client plan spans about 35 years.
Valentine, whose firm manages about $600m in assets, said he
plans to break into the Facebook client base through connections with venture
capital firms, and he has meetings set the next two weeks to leverage those
relationships. "It’s the hot ticket in Silicon Valley," he said of
David Arizini, managing director of Constellation Wealth
Advisors, has several current and former Facebook employees as clients and hopes
they refer more of their friends.
But he knows that it will take time and work to win them
over for his firm, a New York and Menlo Park-based wealth manager with about
$4.5bn in assets under management.
"They are very sceptical of the financial services
industry largely because of what has transpired over the last three
years," he said. "So the bulk of clients interviewed five to 10
advisers before they made their choice."
The imminent flood of Facebook dollars is sure to provide a
welcome boost to local businesses in Silicon Valley, from high end car
dealerships to wine merchants.
Buff Giurlani, founder of car and wine storage service
AutoVino in Menlo Park, is looking forward to an acceleration in already-brisk
trade. "If a Facebook guy buys a house and wants to remodel it, maybe the
contractor will buy another car," he said. "Maybe the realtor will
put a car in. There's a trickle-down effect."
For Facebook's younger staffers, who favour jeans and
T-shirts over designer suits, the shopping sprees will almost certainly involve
computers and electronics.
"Start packing pepper spray for your next trip to the
Apple store," said Bessemer Venture's Cowan.