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Lucky few to cash in from Facebook IPO

Written on:February 6, 2012

Stanford University alumnus Ezra Callahan likes hockey and has 722 Facebook friends. Among them are Sean Parker, Dustin Moskovitz and a college dropout named Mark Zuckerberg.

Those friendships are about to pay off. That’s because Callahan is one of a cadre of people with substantial equity stakes in Facebook Inc. His slice of the pie is slim — a reported 0.08 percent — but given the social network’s expected valuation of up to $100 billion when it goes public this year, those hundredths of a percent add up fast. Less than a decade out from his days covering women’s volleyball for the Stanford Daily, Callahan could be depositing $80 million in the bank by year’s end

With the long-anticipated filing of Facebook’s formal registration for an initial public offering finally occurring Wednesday, enormous attention has been focused on the tens of billions of dollars that founder Zuckerberg is set to earn.

But the windfall from the IPO — which the company hopes will raise $5 billion from the sale of new shares that are expected to be traded this spring under the ticker “FB” on the New York Stock Exchange or Nasdaq Stock Market — extends to a small network of people who live outside the tech limelight. And given the long run-up to this liquidity event, the excitement of these current and former Facebook employees and outside investors is almost palpable

“Personally I can’t wait for the waterpark to be opened,” Slawek Biel, a software engineer who has worked at Facebook since late 2009, wrote in an online forum discussing the IPO.

Who will cash in?

Estimates about how many millionaires the offering will mint vary widely, with some guessing as many as 1,000. Certainly, employees and investors who got in early and managed to protect their stake will do well

Of course there’s Zuckerberg, whose 28.4 percent stake could mean a fortune valued at $28 billion if Facebook raises the high-end valuation of $100 billion. That would earn him the ninth spot on Forbes’ list of richest Americans, putting him in the same league as Microsoft’s Bill Gates and Larry Ellison of Oracle Corp. (Wednesday’s filing reveals that Zuckerberg will hold about a third of the company’s shares but nearly 57 percent of the voting power. That leaves him with control over the fate of his firm. His role is so central that the documents listed his death as a risk factor for the company.)

Beyond Zuckerberg are such original employees as Moskovitz, Zuckerberg’s Harvard roommate who holds 7.6 percent, and venture capitalists such as Peter Thiel, who put $500,000 into the company in 2004 and now could reap more than $2 billion.

Also cashing in: Eduardo Saverin, the company co-founder who was later forced out after a bitter break with Zuckerberg. Although his original stake was deeply diluted, Saverin reached a confidential legal settlement with the company in 2009; reports at the time speculated that he had a 5 percent stake in the company.

Likewise, Divya Narenda and Cameron and Tyler Winklevoss, who were immortalized in the 2010 film “The Social Network” for their legal battle against Facebook, reportedly hold stakes of about 0.022 percent apiece — which could be worth a collective $66 million.

Celebrities also are getting in on the act. Elevation Partners, the investment firm that counts U2 frontman Bono as a managing director, spent $220 million amassing between 1.25 percent and 1.5 percent of the company in 2009 and 2010

Parker, who co-founded Napster and brought in Facebook’s first round of funding before his ouster after a drug bust, holds roughly 4 percent of the firm. Others in line for a payout include Li Ka-Shing, China’s richest man, and Facebook co-founder Chris Hughes, who left the company in 2007.

The prospective cash infusion has set the Silicon Valley abuzz. Real estate agents are gearing up for a home sales bonanza as worried home shoppers ask what effect the Facebook IPO will have on property values.

Not everyone associated with Facebook is going to get rich. Although the company was generous with stock options early, it grew tighter over time and for the past few years has not been offering stock options to employees. Instead, it issues restricted stock units, many of which do not vest for several years.

‘Alternatives materialized’

And many of those lucky enough to have tradable stakes will still have to wait for a 90- to 180-day “lockup” period to pass after trading begins in order to begin unloading their shares.

In the meantime, such former workers as Callahan — who earned his stake working at the Menlo Park, Calif., company as product manager and head of internal communications from 2004 until mid-2010 — are hardly suffering.

In an online post a year ago, he described the anxiety felt by many at Facebook over holding shares in a private company. “It became increasingly nerve-wracking having equity in the company that was on paper worth a lot but which couldn’t actually be liquidated into real money,” he wrote. “Fortunately, other alternatives materialized.”

For many, the rise of private trading markets like Shares Post and Second Market provided that alternative by allowing equity holders to sell shares privately. On Wednesday, for example, Facebook shares changed hands on Shares Post for $38 a share, implying a market valuation of the company of $89.4 billion.

After leaving Facebook, Callahan returned to Pasadena, Calif., where he had graduated from the Polytechnic School in 1999. In June, he bought a five-bedroom, six-bathroom Georgian colonial with a pool and spa for $3.6 million.

The Washington Post contributed to this report.