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Incentivising staff with equity
Sarah Lacy has written an ill-conceived attack on “mercenary employees” at Facebook who have chosen to cash some of their shares in the company.
Facebook has recently announced a tender offer for up to $100 million of common stock that allows staff and ex-employees to sell up to 25% of their shares in the company. Sarah describes a “stampede” to accept the offer which is now over-subscribed.
She fears that is a terrible thing for Silicon Valley:
Her conclusion is “if the employees of the Valley’s hottest company can’t be bothered to buy and hold a while, why should their investors and founders?”
What utter tosh.
Facebook has been running for five years. It has grown from an idea in a Harvard dorm room to a business valued at $10 billion in its most recent investment round. The tender offer is at a discount to the valuation at $6.5 billion.
But where can Facebook go from here. Google’s market capitalisation is now around $140 billion. So Facebook could still grow another 15-20x if it manages to work out how to monetize its traffic as successfully as Google did. But for many of these employees, they’ve probably already seen the value of the shares grow 10-20x.
Any sensible investor will tell you that there is a time to lock in profits. Any survivor of the dot-com boom will tell you of their regret at not converting their paper promises to cold, hard cash when they had chance. And anyone with a family to support or a housing ladder to clamber onto knows that when a windfall of cash comes knocking, you’d be mad not to take it.
I don’t know Sarah’s personal circumstances. Maybe she is very rich. Maybe she doesn’t have expensive tastes. Maybe she doesn’t have three kids and school fees to worry about.
Worse, maybe she thinks that people who have any of these things have no place in the Valley, because they value security as well as opportunity. Really skilled employees are not just the risk-takers and the gamblers: they are people with experience, with knowledge and, sometimes, bills to pay.
So giving them a chance to lock in a massive increase in value allows them to become a little more comfortable staying with the company. And it’s not as if they no incentive to see their company succeed: they’ve still got three times as much stock left as the amount they’ve sold.
I think Facebook has been smart. It’s employees will be happier and if its trajectory slows, these employees are likely, in my opinion, to be *more* loyal, not *less* loyal.
It seems to me that Sarah is pining for the bad old days of the dotcom boom.
Is that really what we want to go back to?