The Mercenaries in Facebook's Midst

In 2007, when Facebook founder Mark Zuckerberg was pressed about when his company would sell shares to the public, he said he was in no rush. "I don't think four more years is too long for employees to wait to cash out," he told me at the time.

Two years on, his employees beg to differ. A $100 million share buyback has been oversubscribed as current and former Facebook employees stampede to cash out some of their shares.

O.K., I could totally understand this impulse if we were talking about, say, Seesmic, Ooma, RockYou, or any other Web company whose frothiest days are arguably in the past.

Fast Growth But this is Facebook, a company that's generating more than $500 million in revenue just five years after its birth in a dorm room. It grew twice as fast as its presumed challenger Twitter in July. The following month, Facebook became the fourth-largest site in the world. Only Google (GOOG), Microsoft (MSFT), and Yahoo! (YHOO) are larger.

And yet a flood of employees rushed to sell their stock for a price that values the company at just $6.5 billion, never mind that the buyers of those shares are the very ones who invested in Facebook at a $10 billion valuation the month before the tender offer was made. In May, Facebook said a Russian company called Digital Sky Technologies would buy at least $100 million of Facebook common stock from current or former employees.

I'm pretty certain that a few years from now, when Facebook does go public, I'll be writing about the $100 million deal that gave Russian investors a chunk of Facebook on the cheap, and the boneheaded employees who gave up too soon.

But in the meantime, I have a more immediate concern: What has happened to the startup work ethic in Silicon Valley? Time was, the region was teeming with believers—be it believers in a company or believers in the sometimes naive, lottery-ticket hope that options would make them billionaires. People who work at the most highly valued startup in Silicon Valley and rush to sell for a smaller valuation—just as an IPO is starting to look likely—aren't believers. They are mercenaries. What's next? Giving up options altogether for a bigger paycheck?

Averting Risk I've railed loudly against the growing tendency to avert risk in Silicon Valley. I've derided venture capitalists and entrepreneurs alike for their short-term focus. But if the employees of the Valley's hottest company can't be bothered to buy and hold a while, why should their investors and founders?

Full disclosure: When in the earlier part of the decade we saw the rise of so-called partial liquidations, or the ability of founders to cash out some of their shares before an initial public offering, I was all for them. I do think founders, who slave for years and typically take small salaries, deserve to cash out a small portion of their equity—say, to put a down payment on a house or pay off student loans. But that's because they're still investing everything else they have in building that company.

Employees are a different animal. Silicon Valley was founded on the belief that stock options were worth something—and that something was a big windfall at an exit, when the whole company watched that ticker crawl across the Nasdaq for the first time, calculated their paper net worth, and popped open the champagne. Does it always work out? Of course not. But that is why it's considered high risk, high reward. How has this gotten so lost on people? Are we just so jaded that we can't believe in promises anymore, even at a company like Facebook?

I'm a part-time employee for TechCrunch, and I don't have stock. (Something I'd like to change, if you're reading this, Michael Arrington.) But let's say I did, and an investor came in and valued TechCrunch at $30 million, where several independent surveys have recently pegged its net worth.

Drink the Kool-Aid Let's also say they offered to buy employee shares at that price. I can't imagine selling. TechCrunch is growing, we have an incredible staff and a solid balance sheet at a time few media companies do. If I truly believed TechCrunch were a flash-in-the-pan that $30 million was the most it would ever be worth, I wouldn't be wasting my time to work there now. Maybe I'm drinking the Kool-Aid—but since when did that become a negative when you work for a company?

There was a fear when people started flooding out of Microsoft and into Google that they were only there for the money. As far as I'm concerned, that same fear was validated as many of those same people later flocked to Facebook. If Facebook were my company, I'd look closely at who is selling—and why. Some folks legitimately need the money. But others, I would suspect, are in it more for the money than for love. That's what I call a mercenary.

Now, the deal lets employees sell up to only 25% of their stock. But how long do you think they'll stick around once the rest is vested? And how hard will they work to build something they're not sure will ever be worth more than $6.5 billion?

Before it's here, it's on the Bloomberg Terminal.