Facebook, Week Two: Fortunes Made and Fortunes Lost (Mostly Lost)

Facebook Sam LesserIt's not quite two weeks since Facebook went public, and the saga of the IPO continues to provide a near-endless stream of headlines. The most recent victim is, surprisingly, Mark Zuckerberg, the 28-year old CEO, for whom the public sale of Facebook stock translated into a dizzying rise -- and slow fall -- from the ranks of the world's wealthiest citizens.

Meanwhile, a cadre of investors -- including a precocious 11-year-old stock player -- continue to complain that a variety of factors either obscured Facebook's true value or got in the way of the smoothly executed trades that would have meant a quick fortune for them.

The Tragic (Largely Fictional) Tale of Zuckerberg

According to most media watchers, the Zuckerberg tale is a tragedy, The Social Network, Part Deux. In this sequel, the young antihero takes his company public, sells a pile of stock, and experiences a brief moment in the clouds as he manages to squeeze his way onto the Bloomberg list of the 40 richest people on the world. Sure, he's right below Azim Premji, a generally-unknown 66-year-old Indian software magnate, but the point isn't where young Zuckerberg is on the list, but rather that he's officially made it. As Oscar losers always say, it's an honor just to be nominated.

But Zuck barely managed to land his deluxe apartment in the sky before Facebook's stock -- the shaky, overvalued bedrock on which he built his castle in the clouds -- began to crumble. Before you could say "massively overhyped," the price of FB shares started to collapse, from $38 to $31 to -- at close of trading Wednesday -- $28 or so. Meanwhile, the young CEO, whose name is now synonymous with evaporated paper wealth, finds himself kicked out of the Bloomberg top 40 party. His replacement? Luis Carlos Sarmiento, a Colombian banking billionaire so obscure that, when CBS Money Watch described him as a Mexican banking billionaire, nobody noticed.

That's the tale as it currently stands: a classic, Greek-style tragedy of hubris, epic overreach, and equally epic failure. It's compelling, exciting, and educational. The trouble is, it is also largely made-up.

What Really Happened

To begin with, Zuckerberg clearly never intended for the Facebook stock sale to be a quick money play. When the company went public, he sold less than 6% of his shares, mostly to raise the funds necessary to pay the tax bill on his remaining holdings. This, by the way, stands in stark contrast to many CEOs -- like Angelo Mozilo and Stephen Schwarzman -- who seemed only too eager to sell their holdings in their companies. Then again, Zuckerberg has never made a secret of the fact that he plans to stay with Facebook indefinitely.

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And, to be honest, it doesn't seem like the young CEO is hurting. The day after Facebook went public, he married his longtime sweetheart, Priscilla Chan, in a move that many considered romantic (he didn't make her sign a prenup) and others considered coldly well-planned (by marrying her after the IPO, he probably shielded most of his wealth in the case of a divorce). Either way, Zuckerberg and Chan are currently enjoying themselves in Italy.

(Side note: For one recent meal, the happy couple spent $40 on a dinner of fried artichokes and ravioli. They didn't tip [it's not common practice in Italy]. In other words, Zuckerberg and wife are already figuring out how to make their small fortune go a long way.)

The Rest of the Investors

So things are okay with the Zuckerbergs, but what about the rest of Facebook's investors? Unfortunately, most of them haven't been doing quite so well. As the stock price has tumbled, the media has echoed with furious recriminations. Blame has been slung in all directions: Depending on who has the microphone, the villain may be Zuckerberg, Facebook, or Morgan Stanley -- the IPO's main underwriter. Most Wall Street watchers agree that NASDAQ, the exchange that hosted the IPO, was more or less incompetent. Morgan Stanley (MS) has suggested that it may reimburse purchasers who overpaid for the shares; meanwhile, Facebook is allegedly trying to move its stock to the New York Stock Exchange.

Such a move will come too late for many investors who were not able to buy and sell shares fast enough. The latest poster boy for those who were burned by the Facebook IPO is, literally, a boy: 11-year-old Sam Lesser, a New York-based fifth-grade entrepreneur who had hoped to bet his stake on Facebook, but wasn't able to execute the necessary trades.

Facebook Sam Lesser

According to The New York Post, Lesser owns his own company, SML Networks, which sells bracelets and skateboards. With $10,000 that he's saved from his sales, Lesser hoped to buy Facebook shares. Unfortunately, NASDAQ's lousy system got in the way, cutting out the poor kid's sale and preventing him from cashing in on the profits he had hoped to make.

Just Missed Millions: These People Walked Away From Early Jobs At Billion-Dollar Companies
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Facebook, Week Two: Fortunes Made and Fortunes Lost (Mostly Lost)

First, we should note that Wixted is plenty successful. She joined Zynga as an early employee and stayed through its IPO.  But she probably could have made even MORE millions if she had left for Instagram when it offered in 2010.

Wixted writes about her missed opportunity on Quora:

"In June 2010, Mike and Kevin were just getting started on their mobile web app which they called Burbn.  I was a lead engineer on the mobile team at Zynga at the time.  Mike contacted me about coming on board as their first hire.  We met, and they showed me their ideas for where they were thinking of heading with Burbn: a photo-sharing mobile app.

... It was a great team fit, but I just couldn't get excited about a photo-sharing app.  I felt, and I still feel, that I need to be working on more complicated things, so I've stayed in the games space...Of course, I'm kicking myself now.  Hindsight is 20/20 and all."

Photo: Amanda Wixted

In 2009, Ali Fedotowsky faced a dilemma. She was a contestant on The Bachelor dating pilot Jake Palveka.

In a tearful goodbye, she left Palveka to return to her job at Facebook. Fedotowsky had run out of vacation days while filming the show and didn't want to miss out on millions.

But when ABC offered to make her its Bachelorette, Fedotowsky left her sales rep gig at Facebook, probably along with her stock options. She joined the company in July 2009 and left around March 2010.

Fedotowsky's engagement to contestant Roberto Martinez ended a few months ago and while Facebook didn't re-hire her, she's now a host on NBC's 1st Look.

Julian Targowski was offered a role at Instagram last October but walked away to launch his own app.

He says he wasn't even interested in the offer because he was loyal to his own team.

"I don't regret a thing," he says on Quora. "You realize a lot of things about yourself (how content you are with your current situation, how hard you're working, where you want to be in the next few years, etc) when things like this happen."

Sahil Lavingia has a buzzy startup now that's raised $8 million from Silicon Valley investors, Gumroad. To start Gumroad, Lavingia had to walk away from his position as the #2 employee at Pinterest.

His timing could have been better. Lavingia left Pinterest about one month shy of his 1 year mark at the company. That means none of his stock options vested.

Hopefully he'll make it back on Gumroad. Meanwhile, Pinterest's valuation is skyrocketing.

Gumroad only has 3 full-time employees. Last month it only had one, founder Sahil Lavingia (second from left).

Robert Cezar Matei has missed a few golden opportunities. First he turned down an opportunity to work for Facebook and decided to stay at Stanford instead. Then he failed to be impressed by Jack Dorsey's Square and turned down an early opportunity there.

But his most costly decision may have been turning down Instagram. He was offered a job as Instagram's 2nd engineer and the founders had only made one other offer prior.

"When I was deciding where to work next, they made me build a follow recommendation algorithm using their API. I guess they liked it," he writes. "We talked about their vision. We had sake in the Tenderloin at 1 in the morning. Kevin crafted a lovely letter, peppered with shared experiences and pictures, as he did for every offer. I was touched."

Instead, Matei went to Quora. He was more passionate about its vision and the position.

"If you're in the Valley for any amount of time, you'll have missed opportunities," writes Matei. "Whatever. Opportunities were rarely as close as they might seem in hindsight. There are a million ways my life could have turned out worse, too."

When Joe Green was at Harvard, he was roommates with Mark Zuckerberg. He and Zuckerberg created Face Mash together, which got the pair in trouble with the university.

Green's father, a professor at UCLA, cautioned him not to work with Zuckerberg anymore. So when Zuckerberg asked him to head up Facebook's business operations, he declined. The position would have granted him about 3 or 4 percent of the company, Green estimates, which would have made him worth about $3 billion.

He still scored some Facebook stock for being an advisor to the company and he later cofounded Causes and NationBuilder, companies other early Facebookers backed.

He tells Bloomberg BusinessWeek, “Every once in a while you can have a moment of bitterness but in general I've been so blessed with what I have been able to do."

When Facebook was taking off and Zuckerberg rented a house in Palo Alto for the summer, he invited Harvard classmate Joe Jackson to come with him.

Instead, Jackson went to New York for a J.P. Morgan Chase internship.

“I completely missed the boat," he tells Bloomberg BusinessWeek of his missed Facebook stock options. "I wasn’t thinking about it as ‘This could be my chance to be rich and famous.' It was more like, ‘This is going to Palo Alto and living in a house with a bunch of kids and programming for a startup that may not go anywhere."

Like Wixted, we should note that Inkenbrandt will be just fine. He chose Pinterest over Instagram, which should yield a decent multi-million payout of its own.

But with Instagram, he could have been a millionaire already. Inkenbrandt writes on Quora:

"I chose to work at Pinterest over Instagram. It was not an easy decision by any means because I really like Instagram and the guys who built it. I'll keep my reasons for choosing Pinterest to myself, but I will say that I don't regret the decision."

Kevin Systrom turned down Facebook and later sold his company, Instagram, to Zuckerberg for $1 billion.

Mike Abbott became Twitter's head of engineering

Steve Chen worked for Facebook for a few months then founded YouTube, which he sold to Google for $1.6 billion.

Photo: HarcoRutgers, Flickr.com


As with the much-discussed Zuckerberg disaster, however, this tale also has a few holes. To begin with, Lesser claims that "we could have made money on this," suggesting that he planned to sell his shares fairly quickly. Had he bought at $38, then sold when Facebook briefly surged to $41.68, he would have made nearly $1,000. However, had Lesser kept his shares past 3:45 p.m. May 18, his investment would immediately have started losing value. As of Wednesday afternoon, it would be worth around $7,400.

So was Lesser undone by NASDAQ, or saved from a big loss? While the answer is unclear, one thing is certain: If he wants to buy and hold, the young investor might want to wait for a little while longer -- it looks like Facebook's price hasn't finished falling.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.

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