Stephen Foley: How much should a start-up’s founder cash in?
Andrew Mason has cashed out $31m in Groupon’s short life
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Saturday 26 May 2012
US Outlook It was startling to have Groupon's head of communications look me in the eye and say, no, I was mistaken, the company's founders had not taken any significant amount of cash out of the business, and Andrew Mason, the chief executive, still has all his net wealth tied up in the success or failure of the email coupons venture he created in 2008.
Paul Taaffe, the veteran public relations boss hired by Groupon in February to repair its battered image, wasn't right, of course. As I've written before, Mr Mason has cashed out $31m in Groupon's short life, while the chairman, Eric Lefkofsky, took out a whopping $398m. The payments to the founding duo were in the form of share redemptions funded by successive private equity fundraisings long before last year's stock market float and were detailed in the prospectus. Fair to say, they will both be fine if it turns out that Groupon's business model is not a profitable or sustainable one.
God knows, we all make mistakes, so I don't bring this up to humiliate Mr Taaffe, who is one of the best in the public relations business. At the insistence of Andrew Mason, andin keeping with Groupon's whimsical style, Mr Taaffe's business card has him down as "Comms Guru",and it's true.
When Mr Taaffe called to correct himself this week, he pointed out that Zynga's founder and chief executive, Mark Pincus, had sold 43.6 million shares at prices up to almost $14 apiece before the online games developer floated. And as we spoke, Facebook shares were crashing to new lows and burned investors were blaming the insiders who decided to double the amount of money they cashed out at the social network's flotation.
It all raised the question of when and how much should a start-up's founders cash in?
The law of the market, of course, says whenever someone is willing to pay them, and at whatever price it is willing to pay. But the law of the market is not a moral law.
To my mind, a rough guide to timing should be that of real economic value created, and that means profits, or at least the scent of sustainable profitability. This is, after all, why entrepreneurs are feted, for the economic benefits that they bring in terms of jobs and income. Anything else is just opportunism and taking money from the bigger sucker. If a takeover offer comes along, so be it, but when it comes to equity fundraisings and stock market flotations, founders have to live in a new partnership with the investors they are bringing aboard.
Zynga has been profitable since the beginning of 2010; Facebook has profitable income streams from advertising and payments across its platform, whatever you think of the valuation multiple that is being put on those incomes. Mark Zuckerberg last week sold no more than he needed to pay his capital gains tax bill.
For Groupon, the partnership between the founding duo and their newer investors will always be strained by that inappropriately early cashing in and the fact that they will both walk away rich. That is a problem that even a Comms Guru cannot fix.
Hundreds arrested as Canadian police smash worldwide paedophile ring
Ja Rule forced to deny leaving wife for prison cell mate
Nelson Mandela: 11 inspirational quotes to live your life by
Ryanair calls on CAA to act over air traffic chaos caused by telephone system glitch
Crash pilot who threatened Ukip leader Nigel Farage found dead
- 1 Hundreds arrested as Canadian police smash worldwide paedophile ring
- 2 Is this the scariest advert ever? Japanese tyre commercial comes with its own disclaimer and health warning
- 3 Sherlock series 3: Benedict Cumberbatch and Martin Freeman provide teasers for the biggest comeback in British television
- 4 A forgotten episode in Russian history leaves links with the Philippines
- 5 People will try to reduce Mandela to a lilting reggae tune about ‘love’. They will fail
- < Previous
- Next >
iJobs Money & Business
£80000 - £100000 per annum + benefits + bonus: Harrington Starr: Project Manag...
£50000 - £60000 per annum + benefits + bonus: Harrington Starr: Business Analy...
£30000 - £40000 per annum + Bonus and Benefits: Harrington Starr: A global Con...
£150 - £250 per day: Cornwallis Elt : iPhone Rollout- Blackberry Enginee...