Facebook Options Follow Up
Proving that I am setting the agenda for the wall street journal, an article was published following my first (well, second) take on the Facebook-Microsoft invesment: namely, it would be tougher to hire developers because of the high valuation set of new options.
Two counter-arguments emerged:
Owen Thomas of Valleywag, rambled on in a cheerfully naive post saying “Facebook has a simple answer: restricted stock units. Like stock options, restricted stock vests over time. But unlike options, the employees actually own the shares outright after they’re vested, rather than having the right — the “option” — to buy the shares at a set price.”
Not once did he mention that it’s hard to multiply and grow $15bn valuations. Instead he said that restricted stock is worth ’something’ where options can be worth ‘nothing’ if the valuation doesn’t move. Somehow I don’t think such an argument is so compelling for the rockstar developers.
Ethan Stock, founder of Zvents, presented a much more compelling dressing down as to the severity of the situation. Basically saying that even though Microsoft’s $240m came in at a $15b valuation, the legal work could apportion some to the value of the international ad deal and that the equity valuation (read: valuation that sets the options) could be quite easily $7.5bn and that common stock (the kind employees get, Microsoft would have gotten some sort of preffered stock) can be priced at a 10% discount, and so the valuation for the options to be granted might even be $750m. If that’s the case, then great. They probably don’t have a problem.
Ethan should have stopped his post right there but instead continues that most employees really only want a 10x gain, and they’ll be happy with that. Well, yes but I don’t think Facebook is looking to hire ‘most employees’. And then the big infusion of capital will allow them to hire “people who, say, went from Netscape ‘95 to CommerceOne ‘98 to PayPal ‘01, just to make up one arc.” Again, does the company want the usual valley wagon hoppers?
Still good arguments on both sides of the fence as to whether this is a problem or not.
Not to mention that when restricted stock grants vest the vestee has to pay income tax on their value. Sometimes tough to do when the company is private and the stock can’t be sold.