Facebook, Once You're Lucky, Twice You're Good, Silicon Valley, venture capital, Web/Tech

Facebook Shares! Get Your Red Hot Facebook Shares!

I wasn't planning to write about the story sweeping the tech blogosphere about Facebook reportedly allowing employees to sell shares, mostly because I thought others covered it well, and as Peter Kafka points out, we're talking about a small amount of money and a small amount of equity.

But I wound up doing a tech roundup post for TechTicker today and started to get into it, so I figured I'd post some thoughts here too. If you know my writing, you're probably not surprised that it's the larger cultural ramifications of the move that concern me.

From TechTicker:

"Still, it furthers a symbolic shift in the Valley. Pre-Web 2.0 resurgence, entrepreneurs almost always had to wait for an IPO or acquisition to cash out shares, but in order to encourage them to hold out for a bigger exit, VCs started doing "partial liquidation" of founders' shares. Founders Fund-one of Facebook's backers-even institutionalized this with something called "Series FF Stock." So if anyone would take it to the next level-namely letting rank and file employees sell shares-- it's no surprise it's Facebook, especially since chief executive Mark Zuckerberg has been clear there's no IPO or acquisition coming anytime soon. Still, it's no doubt troubling to Valley folks who fear the startup culture has become too much about money and guaranteed returns amid the rank and file. Afterall, no one deserves a big exit just because they were lucky enough to land a job at a hot startup. Aren't startups supposed to be high risk?"

Increasingly, as I travel the world meeting entrepreneurs in London, Israel, France, Des Moines, Los Angeles, Omaha and Washington D.C., I'm struck by how safe it has become to start a Web company in the Valley. Yes, it is grueling hard work with odds of a big hit stacked against you, but Web entrepreneurs have a comparatively easy time finding backers or at least generating enough revenue for a salary. Likewise, if they start to do well, it's almost standard to exercise a partial liquidity option and take some money off the table. (Kevin Rose, Mark Zuckerberg, Ben and Mena Trott have all done it and they're not alone, as my book details in excess.) Ok, so not everyone even gets a modest hit. Who cares? With the speed and reach of the Web you can know fairly quickly if you've got something or not. If not? Abort or iterate. Even if you go down in flames, you got to live the startup experience and if you seemed to do it well, even that buys you cred in the Valley.

Compare that to other cities where people are considered downright insane to start a company instead of an assured career path like finance (in London) or entertainment (in LA); where cash and support-systems aren't as available. It has become strikingly apparent to me in the last few months that this lauded culture of risk taking in Silicon Valley may not actually be so pronounced. In other words: Has our class of startup worker bees gotten soft and spoiled on us?

To be clear: I'm not really talking about founders, even though the Web 2.0 world does make it less risky. Founders are still putting their name and future on the line, even if they do get funding. After all, no one wants their venture to fail. Rather, it's the rank and file that flits from startup-to-startup that concerns me. I've long defended entrepreneurs' desire to cash out some of their shares. It's absurd for venture capitalists to say everyone should wait for an exit to cash out, when they get paid millions in management fees, not to mention bets on other companies.

But letting employees cash out? It makes me feel a little queasy. Like this might be the beginning of some larger business and cultural slippery slope in the Valley. It encourages the same short term "trading" mentality that's rife both on Wall Street and in the media's up-and-down, 20-second-hype-cycle coverage. I always found it admirable that Mark Zuckerberg made it clear Facebook wasn't the place for you if you wanted a quick flip (one of those striking moments to me in the now famous SXSW interview that's probably sold more books for me than Amazon.com!). Doesn't this send an opposite message?

I know, I know, it's a small amount. But if Facebook does it, it sets a precedent and as startups war for talent the ante could keep getting upped. "It troubles me," as "The Biscuit" on Ally McBeal used to say.


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Very interesting. I must admit that I flip-flopped about four times on my position while reading your post. It just seems to me that its not that black and white. What constitutes an employee? Is it the 5th employee? Or the recently hired event planner? Or the janitor (nothing wrong with that). It does make a difference how long the employee has been there and what their impact is/was. I would argue that some of the early employees (i.e. someone like Buchheit) did as much for Google as the founders. Do they deserve to cash out a little along with Mark? Hell yeah.

But you are right that if the entire company is now lining up to cash out, then we have a problem. And it could then be cultural.

Thought provoking post, as always.

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Srah Lacy

Sarah Lacy is an award-winning reporter who has covered high-growth entrepreneurship for more than fifteen years. She is the founder, CEO and Editor-in-Chief of PandoDaily.com, the site-of-record for the startup ecosystem. She lives in San Francisco.

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