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A lucky few could hit the jackpot

ROAD TO IPO : INSIDERS

The Facebook IPO is expected to create as many as 1,000 instant millionaires this year.

February 02, 2012|Ken Bensinger
  • Original Facebook employee Dustin Moskovitz, left, with Mark Zuckerberg in 2005, holds a 7.6% stake in the company.
Original Facebook employee Dustin Moskovitz, left, with Mark Zuckerberg… (Robert Durell, Los Angeles…)

Stanford University alum 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 handsomely.

That's because Callahan is one of a small cadre of people with substantial equity stakes in Facebook Inc. He earned it working at the Menlo Park company as product manager and head of internal communications from late 2004 until mid-2010, helping run events like a 2008 New Hampshire presidential debate sponsored by Facebook.

For The Record
Los Angeles Times Friday, February 03, 2012 Home Edition Main News Part A Page 4 News Desk 1 inches; 28 words Type of Material: Correction
Facebook windfall: An article in the Feb. 2 Business section about people with valuable stakes in Facebook's upcoming initial public offering misspelled Divya Narendra's last name as Narenda.

Callahan's slice of the pie is slim -- a reported 0.08% -- 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 an extra $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, 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 this week.

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.

Beyond Zuckerberg and his 28.4% stake are original employees like Dustin Moskovitz, Zuckerberg's roommate at Harvard who holds 7.6%, and venture capital hands like 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 of the company 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% 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% apiece - which could be worth a collective $66 million.

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

Sean Parker, legendary in tech circles for co-founding Napster and bringing in Facebook's first round of funding before his ouster after a drug bust, holds roughly 4% 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 entire Silicon Valley abuzz. Real estate agents, for example, 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, however. Although the company was generous with stock options early on, it grew tighter over time and for the last 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. If Facebook's price declines over time, they could be worth much less than they are on paper today.

And many of those lucky enough to have tradeable 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, Callahan, who did not respond to requests for comment, is 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," Callahan 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, where he graduated from the prestigious Polytechnic School in 1999. In June, he bought a five-bedroom, six-bathroom Georgian Colonial with a pool and spa for $3.6 million.

--

ken.bensinger@latimes.com

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