February 2, 2012
NYT: Facebook spreads wealth high and low - Business - US business - msnbc.com
David Choe was paid in Facebook stock for paintings at the company's first headquarters. His payout may be $200 million when it goes public. Some investors may make billions of dollars.
SAN FRANCISCO — The graffiti artist who took Facebook stock instead of cash for painting the walls of the social network’s first headquarters made a smart bet. The shares owned by the artist, David Choe, are expected to be worth upward of $200 million when Facebook stock trades publicly later this year.
The social network company announced its $5 billion public offering Wednesday afternoon, which is expected to value the whole company at $75 billion to $100 billion. Ultimately, that offering will mint a lot of billionaires and millionaires.
Some of them are well known, like Mark Zuckerberg, the company’s co-founder, but many others are not household names. Mr. Zuckerberg, 27, has 533.8 million shares, worth $28.4 billion based on a company valuation of $100 billion, or $53 a share. He also has undisputed control of the company, a remarkable achievement since the company has received financing from some of the world’s top business minds. He owns 28.4 percent of the company outright and he controls 57 percent of the voting rights.
Facebook’s first outside investor, Peter Thiel, the billionaire contrarian, led a $500,000 investment in Facebook in late 2004. He has 44.7 million shares that could be worth more than $2 billion. Elevation Partners, the venture capital firm of Bono, the U2 frontman, paid $120 million for a chunk of Facebook’s shares in 2010 and could receive a payout that would help mask less sage investments in Palm and Forbes.
Accel Partners, whose principal partner, Jim Breyer, invested in the start-up seven years ago, holds 201.4 million shares. Accel could have a thousandfold return on some of its investment.
Facebook files for IPO; plans to raise $5B
Sheryl Sandberg, the company’s chief operating officer, holds 1.9 million shares, about 0.1 percent of the company. But she may ultimately collect 38.1 million additional shares, according to the filing, making her one of the richest in a tiny club of Silicon Valley women who are billionaires.
The wealth created by a technology company’s entrance into the public markets has long been startling. Netscape’s 1995 offering made millionaires of scores of people, including its founder Marc Andreessen, now a Silicon Valley venture capitalist who invested early in Facebook and holds 3.6 million shares worth nearly $200 million. When Google went to market with its $1.67 billion I.P.O. in 2004, hundreds of people joined the millionaire ranks, including secretaries, a company masseuse and a company chef.
Bill Gates controlled only 49.2 percent of Microsoft as it went public in 1986. Google’s co-founders, Larry Page and Sergey Brin, each owned about 15 percent of their company when it went public in 2004.
Enormous projected value
Two factors distinguish Facebook’s turn. For one, the projected value of Facebook is enormous —the largest on record for an Internet company, even several times greater than Google’s offering in 2004. The social network, founded in Mr. Zuckerberg’s dorm room at Harvard eight years ago, is expected to be valued north of $75 billion. Shares of Facebook have already traded on the secondary market, where private shares are bought and sold, above $80 billion.
And unlike Google’s public offering, a large chunk of the wealth tied to Facebook has already been realized, thanks to the thriving secondary market and an eager pool of global investors. Even if Facebook hits only the low end of expectations for its offering, it will still yield some of the greatest returns in the history of venture capital.
Facebook offers reasons not to like its shares
“Facebook will return insane amounts of money to the early stakeholders,” said Alex Gould, a technology investor and instructor at the Stanford Institute for Economic Policy Research, who has been studying venture returns for several years. “Facebook is not just a fund-maker, it’s a firm-maker.”
It’s a big winners circle. DST Global, the investment firm led by the Russian billionaire Yuri Milner, owns roughly a 7 percent stake in the company. It bought the bulk of its shares from 2009 to 2011 at valuations of $10 billion to $50 billion.
According to the company’s filing, Mr. Zuckerberg’s father, a New York dentist, was awarded two million shares of stock “in satisfaction of funds provided for our initial working capital.” Dustin Moskovitz, Mr. Zuckerberg’s college roommate, a fellow Harvard dropout and company co-founder, holds 133.8 million shares.
During Facebook’s early years, the company granted valuable options to about 250 employees, according to two former senior Facebook officials with knowledge of the matter. This club includes some of the largest stock packages, these people said.
In 2007, the company stopped issuing options and switched to restricted stock units. Still, a large number of employees hired after 2007 have millions in shares today. David A. Ebersman, Facebook’s chief financial officer, who was hired in 2009, has more than seven million in unvested shares.
The list of notable shareholders also includes some people who may be considered unwelcome at Facebook. Tyler and Cameron Winklevoss, the Olympic-rowing pair, Harvard graduates and former business partners of Mr. Zuckerberg, own about 1.2 million shares as part of their settlement with the company and their former classmate, who they claim essentially stole their idea for Facebook.
The company’s estranged co-founder, Eduardo Saverin, who provided some of the initial financing and later sued the company for cutting his stake, managed to cut an even larger settlement, worth 5 percent of the company. He has since sold a large block of his shares on the secondary market. He is not mentioned in the Facebook filing.
Choe gets rich(er)
The payout to Mr. Choe, the graffiti artist, could provide more money from his paintings than Sotheby’s attracted for its record-breaking $200.7 million auction in 2008 for work by Damien Hirst.
In 2005, Mr. Choe was invited to paint murals on the walls of Facebook’s first offices in Palo Alto, Calif., by Sean Parker, then Facebook’s president. As pay, Mr. Parker offered Mr. Choe a choice between cash in the “thousands of dollars,” according to several people who know Mr. Choe, or stock then worth about the same.
Mr. Choe, who has said that at the time that he thought the idea of Facebook was “ridiculous and pointless,” nevertheless chose the stock.
Many “advisers” to the company at that time, which is how Mr. Choe would have been classified, would have received about 0.1 to 0.25 percent of the company, according to a former Facebook employee. That may sound like a paltry amount, but a stake that size is worth hundreds of millions of dollars, based on a market value of $100 billion. Mr. Choe’s payment is valued at roughly $200 million, according to a number of people who know Mr. Choe and Facebook executives.
Although Mr. Choe initially led a rough life including run-ins with the law, he is wealthy even without the Facebook offering. (It is unclear whether he sold any portion of his Facebook holdings on secondary markets.) Now a very successful artist with gallery shows and pieces exhibited in major museums, Mr. Choe declined requests to be interviewed for this article; he said he wanted to maintain his privacy. He has, however, published an obscenity-strewn book of his art, “David Choe,” which includes images of the multimillion-dollar murals at Facebook.
Mr. Choe’s page on Facebook shows the life of a modern-day renegade artist. Among the images of his graffiti, there is a trail of images of him partying with scantily clad women and spending large amounts of money on alcohol. In recent weeks, Mr. Choe promoted photos of a $40,000 bottle of alcohol; a single shot, he boasted, costs $888.
He offers life advice in his book: “Always double down on 11. Always.”
Maybe the better advice is to take stock, not cash, from Harvard dropouts in Silicon Valley.
By Nick Bilton and Evelyn M. Rusli The New York Times Feb 2, 2012
NYT: Facebook spreads wealth high and low - Business - US business - msnbc.com
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