Facebook's Carrot of Damocles

It would appear that Facebookers are now selling off shares in the company - not the employees, they only get their shot later - but the senior management - according to an article from Businessweek (link thanks to Valleywag). Valuations are said to be between $6and $ 3.75 bn.

Now nothing surprises me very much anymore, but I am wondering if Facebook's backers fully understand what they are allowing here - as Businessweek notes:

Such 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.

I suspect grumbling is putting it mildly - knowing your bosses are feathering their nests while your wings are being clipped is hardly a recipe for the "we're all in this together" ethos that startups thrive on. Also, traditionally that big payday event has been the carrot the has led the entrepreneurs to whip themselves ever onward and upward. Quite how this occurs when the founders et al already have their millions and the Miami Factor* is taking hold.

This practice truly is the Carrot of Damocles - the whole point of that sword was it only had impact before it had fallen. This has fallen in so many ways - size of carrot, intentions of management etc.

To alleviate this impact, the company has now decided to let employees join in the sell-off as well, at $4bn valuation and a limit of 20% of their shares. When the going gets tough.....

Not that I'm against it in principle, mind - the risk/reward of staff vs funders has been too skewed the other way - but I can't help feeling that a company with a "fair play" ethos woud have let all people sell under the same rules at the same time**.

As an aside, that valuation of $3.75bn is far closer to our estimates at the time - I hope all those bloggers pimping $15bn valuations hang their heads in shame now

* A term an old boss used for the rapid loss of motivation a Founder typically has when they realise they are now wealthy, and that, to misquote Jane Austen, a man with a fortune is a man in need of a Miami penthouse, boat and the babes that go with it.

** I know, I know - but in the Olde days that backhanding was all hidden under the carpet, the staff had the perception of equal treatment.