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Robert Galbraith / Reuters
Will Mark Zuckerberg have the Midas touch? Facebook, the world's No. 1 online social network, is preparing for a blockbuster initial public offering that could create at least a thousand millionaires.
Traveling to space or embarking on an expedition to excavate lost Mayan ruins are normally the stuff of adventure novels.
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 millionaires.
The most anticipated stock market debut of 2012 is expected to value Facebook at as much as $100 billion, which would top just about any of Silicon Valley's most celebrated coming-out parties, from Netscape to Google Inc.
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 $50 million.
"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 Network."
Initially, the group wanted to organize 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 program.
Big packages
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 $1.6 billion 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 co-founder Peter Thiel -- will see the biggest paydays. Zuckerberg, 27, 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 $100 billion 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 around $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 $12 million.
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, 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 new challenges.
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 IPO."
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," he said.
Wealth managers drool
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 Corp, 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 $600 million 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 Facebook.
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 $4.5 billion in assets under management.
"They are very skeptical 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 favor 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.
Copyright 2011 Thomson Reuters. Click for restrictions.
Leave a Comment:
I want in on this cash cow....
If ya cant beat em (the 1%s), join em....even my horse "Big Tex" wants in....he dreams of big city life...tired of good ol Texas country fried chicken and gravy life...
Where do we sign up?
All the Occupy losers can go sit on their doorsteps now.... Or may get the hint that work equals success.
R,Scalzo: Go tell that to the 100's of thousands that have lost their jobs after working and slaving for years for the same company just to be canned or layed off. But yet the exec's get millions in bonuses. Tell them how hard work equals success. You are a gutless fool. I've got mine, screw you type.
Tell the 100's of thousands to get off there lazy butts, hit the bricks and at least try to find another job, rather than sit and cry poor me, poor me, these OWS people are pathetic lazy crybabies.
verno - You are a gutless fool. I've got mine, screw you type
Is that really any worse than your, you got yours now give it to me type?
In Obama's America, this not only happens, it's encouraged!!! Let Freedom ring again!! Go Occupy!!!
If it sounds too good to be true it probably is.
I am not going to do a sermon on how foolish it is to put your personal information on any site such as Face Book, listing the endless ways the information is vulnerable.
What I will say is that for these millionaires to appear it requires theses stocks either through purchase or whether they are given to you to grow in value, for the stocks to grow in value someone must be willing to purchase them for more than their listed value.
So I am all for wealth accumulations, and do not wish bad tiding to whom ever gets involved here, but as in any investment that is based on the whims of the public “feelings” can change on a dime and spin 180% in the blink of an eye.
Netflix’s value to its share holders went straight into the toilet when they recently made a monumental screw up, and lost ¾ of their base from one stupid decision.
What I find unusual today is that MSNBC has “allowed” everyone to post normally on this Face Book article, but today is forcing all comments on the lead article on the first page concerning Santander Bank screwing millions of borrows to comment to use a Face book account?
I am always leery of any product forced on a user suddenly appearing as a value stock.
As always buyer beware, if it too good to be true, it probably is.
@LetmeExplain: Exactly! You nailed that one right on the head. I read through this article wondering the entire time how they determined that these stocks will "create" 1000 millionaires when that would depend solely on the stock-holders selling their stock at some point - something the article suggests might be frowned upon (although it wouldn't stop me - I'd sell the day my 6-month window shut). Also I noted that the article mentioned compensation including stock OPTIONS - not stocks. An option to buy 65,000 shares of stock at $6 is meaningless (or at least partially so) if you don't happen to have $390,000 in cash lying around the house to buy the stock.
As far as FB stocks maintaining any sort of value. . . now that's a crap shoot! I spend far less time on FB than I did before MZ's latest "fix." And, that's partly because it seems that most of my friends spend far less time on FB - so there's not much point in going there any more. If Zuckerburg insists on continuing to "fix" or "improve" his creation, there won't be anyone left using it. The stocks will be selling for $0.05 sooner rather than later - if you can find anyone to buy them in two years.
is it just me or FB is highly overvalued, in other words a piece of junk? the User Interface is not intuitive, the network is filled with spam and silly games like Farmville and Poker.
i doubt this "get rich quick" trend in which FB is a part of is going to last long.
we need to invest more in science and engineering and less in these teenage stuffs.
Miker - you don't have to spend any money to exercise options on stock if the stock price is higher than the option price (which is what is expected here).
Markl323 - while I think, as with anything, FaceBook has it's issues, but it does an excellent job of helping people stay connected and making it easier to share their lives. People may not be programming or designing on FaceBook, but by helping to keep people connected, it is helping forge ties that can lead to the next great discovery. Also, I think having a socially connected world is, by itself, a great benefit to the human race. People are much less likely to want to go to war with someone that converse with on a daily basis.
Congratulations to everyone at FaceBook, and I hope all of you make a ton of money on this IPO!
I've done the multi-year startup thing, and I know how hard it can be - and I don't begrudge anyone making millions - my guess is you've earned it. (no, I never hit it remotely close to this big - but I don't begrudge those that take the risks, make the sacrifices, and get lucky)
Congress probably have already pre-bought their shares.
Burger King is hiring verno...you might make assistant manager in a few years
Easy come, easy go...I have lost more money than most people will ever get.I guess I'm a looser.
Not really...but true...I guessed on gold and google...Happy go lucky
Ron: I will freely admit that I'm no MBA/Finance, but I'm pretty sure actually exercising an option to buy stocks involves money. In this case, the way the article explained it, the option to buy a share of FB stock was $6. Thus, actually exercising the option to buy 65,000 shares would have required actual payment of $390,000. Having the option without exercising it is worth approximately $0.00. Much like owning non-dividend paying stock that you never sell.
I have an old box van in my back yard. If someone is willing to pay me $1,000,000 for it, I'm not a millionaire unless I actually do the deed and get the cash in hand. Merely having some guy in Toronto tell a reporter at the WSJ (for example) that he would pay $1,000,000 for my truck does not make me a millionaire. By the same token, if I give the guy an option to buy my truck for $100 and he never exercises it, he's not a millionaire, either - even if old box vans start selling for $2,000,000 each. (I wish.)
No way to know whether $6/sh would be a good option to exercise since FB stock is not yet openly traded and I have no idea what a share might actually sell for on the open market. My gut inclination is that $6.00 per share is grossly overvalued.
Here's another thing to consider. Let's say $6 is a good price. Today. And, the guy exercises his option for $390,000. Now he's got 65,000 shares of FB. For every dollar that the stock drops, the guy "loses" $65,000 - until he's got nothing. Let's say the stock stays at $6. Still - if nobody else will pay $6/sh for it, the guy hasn't "made" a dime.
It's a shame that some people can't understand that life has its ups and downs. Fortunate are those who have never had to experience the down side and can therefore write off everyone experiencing some bad times as "pathetic lazy crybabies." Still, it would do these people well to realize that good fortune does not always last and that things can change quickly. Then it will be them who are written off by the heartless who believe that they are the only ones who have worked hard in life. What goes around comes around.
As for the facebook people, good luck to them. It is heartening to hear that there is still a company willing to reward the average worker who actuyally built the company, instead of reserving all its profit for the CEO and top brass.
Miker - You do not need to have cash to exercise stock options when the stock is worth more than the option price. Transactions are routinely done where the stock is bought and sold at the same time and the option holder gets the difference between the two prices, minus commissions of course. Also, it is fairly common for someone to exercise options and sell enough shares to cover the cost of the purchase and commissions and retain the remaining stock. I have personally done this on a couple of occasions. Also, in these types of transactions stock is also sold to cover the taxes, which are significant. In any case, so long as the current share price is higher than the option price, you do not need cash to exercise the options.
You are clueless Miker. The article estimates the share price in an IPO at $40. Call options by themselves are worth more than the equity in the shares namely $34 plus a premium for the time value remaining if they aren't restricted. Most just exercise the options and sell the shares concurrently. No cash required and they really only need to sell enough shares to pay the difference.
PS: Haha...That's what I get for taking to long to post...Looks like you beat me to it JS.
Hey A thousand or more villains because anybody that makes money is a villain?
Oh wait lets just tax them down to the bottom 99% so we feel good about ourselves.
JS: I'll have to try that some time. . . Actually, I think that's the sort of thing I might let my broker handle for me. Sounds like a huge window of opportunity to screw something like that up royally. Also sounds like the sort of "creative high finance" that results in things like derivatives composed of nothing but bundles of bad mortgages. . . Not the same, of course, but similar in nature.
And, I still say that an option not exercised is worth $0.00 regardless.
@What? - Up yours. I said I'm not a freaking MBA. So, bite ME. In fact, if you can't jump into a discussion without being an ass, just stay out of the discussion altogether.
Go FYS Miker- If you can't post without making yourself look like a total fool maybe you should just STFU. When I see stupidity I will call you on it. It's my job here.
Just like voting up your own comments, apparently! LOL. Idiot. You've just made a "friend."
@What: Funny - I generally agree with your comments. But, that doesn't stop me from thinking you're a d1ck. Or you from being one, evidently.
$100 billion valuation...poof.
Good luck, Investors of this IPO. I doubt I'll live to 122 so I'll pass. The only thing that would wiggle my investment ears would be to hear whomever is forming a takeover strategy, otherwise, I would fear a Yahoo-like missed window of opportunity to sell this gimmick when the tide is high and the egos are low.
Exactly, after all the hype is gone it's going to be like Groupon.
Wait 2 months, let it plummet then buy in.
Yes, remember Yahoo
Piss on facebook.
Brilliant post, NOT!!!
...says @cliff, who just used "NOT" to make a joke....
Dude the early 90's called, they want their material back.
Also, on a side note, mullets are AAAAAWESOME DUUUUDE!!! *High Five*
Harry, Yeah that may be true but I keep hearing the "Drink the Cool-aide" which is an over 30 year reference.
Cletto, I'm only 40. That whole thing in Guyana was a bit before my time. But its still used cause of the horrid repercussions of "drinking the koolaide". NOT is just wrong. Like mullets and fat chicks in spandex.
I loved Koolaid when I was a kid. And as dumb children in the 70's, we used to say drink the koolaide when we were drinking koolaide cause we were under 10 and didn't know what it really meant.
Just thousands of more people who Ed Schultz can blame.
Exactly, I hope these people are prepared to almost instantly go from hard working, intelligent people who are the future of our country to greedy, evil people who represent everything wrong with our country.
I'll volunteer to be one of those people!
can blame for what?
If we could publicly auction of shares of hater aide one could single handedly solve our fiscal problems is one fail swoop! America has that is spades.
That's one "FELL swoop." Or, as I like to say, one swell foop.
Much like Myspace the value is in info for advertising and once that start the people that use it will move on to the next thing that isn't cluttered with crap and this will go down as well, the reason it worked is because it was for social networking the only way to make money off these is to sell peoples info or sell ads and clutter it with crap get your money now cause it will be just as useless as myspace in no time.
I don't know. The ads are all shuffled off to the side and it looks like they've banned Flash (thank god). Not much to drive people away yet.
My main interest in FB these days has been Zynga's version of scrabble, and that game is loaded with ads. You have to sit and wait 5-8 seconds between plays for the flash ads to run. I give it about another week before I get tired of it and quit playing altogether. It's already getting harder to find random online opponents, so apparently I'm not the only one who feels this way.
Oh. I just go to the main page, not any of the games. That seems okay.
AG: Have you noticed since the latest "fix" that you hardly see any of your friends' status updates now? Seems like I see updates for only a very limited number of my friends now. So, while I agree that the main page ads are barely even noticed, iit's also not much fun any more.
Now that you mention it, yes. Everytime they mess with it, fb seems to become more unusable. Those new millionaires better cash in quick.
The Left has got to be hatching a scheme right now trying to figure out how they can tax these EVIL millionaires
Ummm I hope they have to pay tax on it..... or are you just stupid?
On the gains........they have to pay taxes on the gains. Duh. Yes, I know that. That's not enough for them though.
Blue sky.
Imagine the layoffs that will happen when the 'shareholders' who overpaid for this monster demand their greedy mitts be satisfied.
And for all you FB addicts. Why don't you just mail a form with every piece of your personal information along with a list of all your activities, your 'likes' and 'dislikes' directly to the department of HS, the FBI, the CIA, GE, BP, WalFart, Microsoft, the Koch brothers, and Karl Rove. It will save time.
What about Fox News? How could a lefty forget them? LOL
If caring about those in need, listening to the command of 'feed the hungry and heal the sick' and living by the golden rule makes me a lefty, then I guess You are correct..and THANK YOU..amd thanks for the reminder.
I forgot to mention.
FOX Lies.
Ugh........................Which lies would those be?
Everything they say.....duh.
Most of these future millionaires are probably saying "Occupy this......." as they grab their junk and pull upwards.
1000 more millionares Obama can shakedown.
Why do I think almost everyone in Silicon Valley is an Obama supporter??
(and that includes Facebook for all you yahoos that don't know Facebook is in Silicon Valley!!)
*and please no rebuffs by TeaBaggers posing as Silicon Valleyites....
Because they live in a fantasy land like him and you.
I wonder how many of these soon to be millionaires will now be willing to have their taxes raised?
I'm not saying taxes should or shouldn't be raised.
People's principles tend to diminish when money is involved.
Why would you want to buy stock in Facebook?
Just asking.
Many of them already went on record saying YES when Obama came thru their town, Einstein. Geez....
If they aren't already millionaires, then how can they say yes? "soon to be."
I figured that one out all on my little own.
Now who looks like the real mental giant?
"Will Mark Zuckerberg have the Midas touch? Facebook, the world's No. 1 online social network, is preparing for a blockbuster initial public offering that could create at least a thousand millionaires."
Wow! Zuckerber couldn't have picked a more appropriate time. Just as Obama is getting ready to increase taxes on millionaires.
Thanks a million Mark!
Those who refuse to learn from the mistakes of the past are doomed to repeat them.
Where does the money come from? I've used Facebook for years and have never bought anything from them or anything advertised by them.
You don't have to actually buy something that was advertised. Yes, Facebook would make more in that situation. But Facebook still makes money when advertisers buy ads even if they aren't clicked. And even if you didn't buy items that were advertised, it doesn't mean that Facebook didn't use your info to compile demographics that were then sold to others.
Think of Facebook as a farm. You might think of yourself as a consumer of the food--you wonder how the farm made money when you didn't buy any of their food. In reality, you're the crop.
I think a lot of the "crops" are pulling up roots and moving on to greener pastures. I, for one, spend FAR less time on FB than I did this time a year ago. Partly because my friends also seem to be spending far less time on FB, so there's really not much going on there for me. Plus, Z'burg's latest "fix" really sucks. (I'd specify more about why it sucks, but I really am not interested in giving Z'burg any free advice.)
Great, when these investors are taxed we can balance our budget.
1000 X 1,000,000 is 1,000,000,000
One thousand time one million is one billion.
They *speculate* the worth to be 100,000,000, one hundred million.
Can you say VOODOO MATH?
Keep pumping hot air into any balloon long enough and it will bust.
TO VERNO Your are 100% right about the greed, but life is not fair, never was and never will be. Some people are lucky, most are not. You have to keep going until you make your own.
$100 billion for what? Facebook doesn't create anything of value, yet it's valued at $100 billion? PLUS it consumes who knows how many unproductive hours? I do not resent them cashing in, and I imagine that most of these folks will NOT mind paying their fair share of taxes now that they're instant millionaires. But products and services made out of air cannot sustain an economy.
Facebook created something of value: a repository of personal information. All those "unproductive hours" that people spend uploading pictures, writing status, liking pages, and making friends are the goods and services. Companies used to pay to conduct research and compile demographics. Now, people are voluntarily doing it for them and they'll reap the rewards.
Sort of like professional sports. (And, hell, college sports for that matter.)
How many things in life don't create anything of real value, allow people to gel into them wasting hours on end, and I'm sure you don't object to them...
I know people the waste their lives in front of TV, waste their lives in front of video games, waste their lives in front of watching sports...so why are any of those any different than Facebook?
Those of us that utilize FB for their marketing have made some decent money for free...where it would have required spending thousands (or even millions) to reach the customer base that I have currently.
Facebook, AOL of the 21st Century. It'll crash just as fast and even harder, everyone will be shocked. ;-)
It's all okay...most of these young people will piss their fortunes away fairly quickly, with things like trips into space, luxury homes and cars, etc...A few will always be very wealthy, but the winners will beinveators and wall street savvy traders.
Actually, the real winners will be the companies that sell space travel and luxury homes/cars. Invest now in Virgin Galactic, BMW, Audi, Lexus, etc. They'll be making huge profits soon after all these people throw away their fortunes.
Good for them! Even though Facebook doesn't produce anything or generate alternate energy, a lot of people use it (not me). They found a product people want to use - not unlike the i phone, i pad, wii, etc...oh...does that sound like capitalism?
Under the socialism scheme, these guys would have all been face down in the gutter from their USSR supply of vodka instead of producing something...think about it... No reason to get out of bed in the morning to accomplish something equals a bunch of lazy loosers.
To all the happy posting authors:
Just a thought...and this had a huge impact on my life after riches, Your health is an investment and your body is like a bank. Be careful and don't squander your 'investment'. Hopefully money can pay or fix many problems in life, but your health you are stuck with. Just saying...So exercise and eat very healthy like your ma should have told you. Money comes second.
My prediction is that within 5 years advertisers notice the how much is a reasonable amount of money to put to Facebook, now they are just wasting their money. Also I still have a problem with their security, I just red this article about bot that invade FB-users: But within 5 years FB's revenues will come down.
That post is
You're giving it 5 years? ?? That's VERY generous. I give it 2 at the outside. In fact, by this time next year I'd be surprised if I even have my FB account any more. If many people feel as I do - and it seems that most of my friends DO - 2 years could be a liberal estimate.