September 10, 2009

Double standard

Sarah Lacy, who wrote Once Your Lucky, Twice Your Good, wrote an article for Business Week calling the Facebook employees who sell up to 25 % of their vested shares mercenaries. I think that is giving a bad name to good people.

* Saying that founders should be able to partly cash out, as Mark Zuckerberg apparently has done, but not early employees because the founders invest "everything" in the company simplifies the reality of a startup. Many employees put as much or at least nearly as much of their lives into a startup as the founder.

* People work at companies for love AND for money. It's not an either or question.

* Employees might want to sell some shares to make a down payment on a house or pay off student loans. Or diversify their investments. That doesn't make them mercenaries.

* Facebook seems to have a 13x revenue multiple, valued at $6.5 billion on alleged $500 million in revenue (likely on the high side). It is a fair to high valuation. Consider the valuations of the four most successful public US Internet companies (Google $145.2 billion, $34.9 billion, Ebay $28.1 billion and Yahoo $20.3 billion), and it is clear that Facebook needs to execute close to perfectly to increase its valuation. Having the majority of your net worth in such a company is quite a risk to an individual employee.

* Given its size, reporting requirements to the SEC and fund raising, Facebook pretty much is a listed company in every sense except being listed on a stock exchange. And apparently being listed is when its ok to sell.

* When did drinking the Kool-Aid become a negative? Well, ask the Enron employees who had large parts of their 401(k)s in company stock. Working at a startup is easier if you drink the Kool-Aid. But as most drinking, it should be done in moderation.

1 comment:

Daniel Ek said...

I think you're right. However, I do think that Sarah Lacy is right about one thing. Sillicon Valley has a superset of managers that are more willing to work for themselves than the company. I know many people who have jumped between Youtube, Facebook, Paypal and other "high-profile" startups in a magnitude of 2-3 years. Them I would say are very close to mercenaries.