Sarah Lacy seems perplexed and indignant that current and former Facebook employees would sell their common stock to Russian investment group Digital Sky Technologies. The Russian investors planned the share buyback when they put down $200 million in exchange for preferred shares of Facebook earlier this year.
In aggregate, with preferred and common shares taken together, Digital Sky Technologies will own about 3.5 percent of Facebook. The terms of the stock buyback value Facebook at about $6.5 billion.
Let’s get back to Lacy’s criticisms, though. I don’t want to take any of what she said out of context, so allow me to excerpt directly from the BusinessWeek column in question. “The Mercenaries in Facebook’s Midst“:
And yet a flood of employees rushed to sell their stock for a price that values the company at just $6.5 billion, never mind that the buyers of those shares are the very ones who invested in Facebook at a $10 billion valuation the month before the tender offer was made. In May, Facebook said a Russian company called Digital Sky Technologies would buy at least $100 million of Facebook common stock from current or former employees.
I’m pretty certain that a few years from now, when Facebook does go public, I’ll be writing about the $100 million deal that gave Russian investors a chunk of Facebook on the cheap, and the boneheaded employees who gave up too soon.
I seriously question whether Facebook will IPO for anything close to $10 billion. Facebook still hasn’t figured out how to fully monetize its assets without alienating its subscribers. At the end of the day, let’s remember, Facebook is nothing without subscribers, those people willing to trade their personal, private information for the right to frequent and socialize on Facebook.
But Facebook must exploit them — that is, it must market and sell their personal, private data to advertisers and others, sometimes explicitly and sometimes not so explicitly — to make money for itself and its investors. Tricky, that. It’s a difficult dilemma. I wouldn’t want to be counting Facebook’s money before it’s been made.
But it’s Lacy’s next statement that’s truly provocative:
But in the meantime, I have a more immediate concern: What has happened to the startup work ethic in Silicon Valley? Time was, the region was teeming with believers—be it believers in a company or believers in the sometimes naive, lottery-ticket hope that options would make them billionaires. People who work at the most highly valued startup in Silicon Valley and rush to sell for a smaller valuation—just as an IPO is starting to look likely—aren’t believers. They are mercenaries. What’s next? Giving up options altogether for a bigger paycheck? . . . .
. . . . Silicon Valley was founded on the belief that stock options were worth something—and that something was a big windfall at an exit, when the whole company watched that ticker crawl across the Nasdaq for the first time, calculated their paper net worth, and popped open the champagne. Does it always work out? Of course not. But that is why it’s considered high risk, high reward. How has this gotten so lost on people? Are we just so jaded that we can’t believe in promises anymore, even at a company like Facebook?
In the above excerpts, Lacy repeatedly invokes the words “belief,” “believe,” and “believer(s)” Those are words typically more associated with faith, religion, and even cults than with the hard-headed world of business. In business, trust and belief must be earned, by employee and employer alike. When one joins a company, one doesn’t usually consent to treat the founder as if he’s Jim Jones or L. Ron Hubbard.
It should be obvious: Businesses exist to make money. Their primary purpose, marketing palaver aside, is to make money. They are investment vehicles, not churches. Everybody who joins a company, which is a business, needs to enter it with his or her eyes wide open.
When one joins a company, one is making an investment — of time, of opportunity, of value. The employee isn’t the only one benefiting from the exchange. The employer benefits, too.
Everybody in that exchange is looking out, first and foremost, for number one. That’s just the way it is. Sometimes, in the spirit of enlightened self-interest, employers and employees strike arrangements that provide sustained mutual benefit. But those arrangements need to be predicated on logic, reason, and, yes, calculation, not on misplaced religious fanaticism.
Finally, have you noticed that Lacy’s observations in the above excerpt are rooted in nostalgia?
She’s talking in the past tense about a Silicon Valley that doesn’t exist anymore. Stock options in startup companies might have been worth something — even something potentially substantial — back in 1999 or 2000, but they’ve been worth less and less in fewer and fewer circumstances as the years have advanced. We’ve reached a point now where the economy has cratered, IPOs are as rare as unicorns, and the prospect of lucrative exits has diminished greatly.
People, the employees at Facebook and other companies, aren’t jaded, Sarah. They’re living in the real world, the way it is today. They can’t afford to live in Silicon Valley’s past. They have to do what’s right for them today, in a tough economy, in a world that bears scant resemblance to the halcyon days of weekly IPOs, bursting beer fridges, and champagne Fridays.
If you ask me, the Facebook employees who took the Russians’ money and sold a portion of their Facebook equity made rational, well-reasoned decisions. They looked at what was offered, considered their options, and chose to sell some shares for a certain gain rather than to keep them for a future payoff that might be better, might be worse, or might never come at all.
They’re employees at Faceboook, after all, insiders who presumably have some insight into what the company is doing and how it is doing.
I don’t begrudge them their choice. It doesn’t make them mercenaries. It makes them realists.