Insiders at Facebook are selling stock in the social networking company, and the prices they're getting for their shares suggest the sky-high valuation backers once placed on the company may prove unrealistic.
Just a few months ago, Facebook was widely viewed as the next Google (GOOG) in Silicon Valley. Microsoft (MSFT) bought a small equity stake last October that implied a valuation of $15 billion for the whole company. Shareholders in the still-private company appeared to be setting themselves up for a blockbuster initial public offering.
But in recent months, a number of current and former executives have put some of their stock up for sale. Laurence Albukerk, who brokers the sale of stock in private companies in the Valley, says he knows of at least nine people who have sold or are trying to sell Facebook shares. He estimates "dozens" are peddling stock altogether, through him or other brokers. Another finance executive, who would not speak for attribution, confirmed Facebook insiders are selling. Among those who have sold are CEO Mark Zuckerberg and executive Matt Cohler. A Facebook spokeswoman said both declined comment for this story.
The prices for Facebook shares in these transactions are far below the $15 billion level. Albukerk, the founder and managing director of EB Exchange Funds, says two current directors and one former executive recently contacted him about selling some of their stock for a $5 billion valuation. He also says two investment firms have bought large chunks of Facebook stock at a valuation of about $3.75 billion. Hans Swildens, founder of a San Francisco firm called Industry Ventures that buys stock in private companies, says his firm has been talking with a growing number of Facebook employees. "There's a lot of interest among people to sell shares," says Swildens.
Rank-and-File Stock SalesSuch stock sales are both unusual and controversial at technology startups. In the past, entrepreneurs haven't had the chance to cash in until their company goes public or is sold. When they do sell, it can create conflicts of interest with venture backers and other employees who haven't realized the same wealth. The sales at Facebook have led to controversy within the graffiti-covered walls of the social network's Palo Alto (Calif.) offices. After word got out that Zuckerberg, Cohler, and other top employees sold, there was grumbling among the rank and file, say two financiers who have spoken with the company's staff.
Facebook is taking steps to address the issue. On Aug. 5, the company said it will begin helping current employees sell some of their stock. "To provide employees with a financial cushion while we continue to build the company, Facebook has designed a one-time program to enable employees to realize some liquidity," the company said in a statement. Facebook declined to outline details of the current plan. But VentureBeat, a blog that first reported the existence of the program, said the plan would limit Facebook workers to selling 20% of their vested stock options at a $4 billion valuation, starting this fall.
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