From James Temple in today's San Francisco Chronicle:
In early April, Zynga Chief Executive Officer Mark Pincus dumped 15 percent of his shares for about $198 million, in an unusual secondary stock offering that came almost two months before the official selling lockup for insiders ended. It turned out to be spectacular timing--at least for Pincus and other executives and early investors. They unloaded big portions of their holdings for $12 per share. By the end of July, after the social gaming company whiffed on second-quarter analyst expectations and sliced forecasts for the year roughly in half, the stock had dipped below $3...
Rank-and-file Zynga employees also feel they've missed out on riches. On the question-and-answer site Quora, anonymous users who said they were Zynga workers vented their frustrations over working long hours for years only to wind up with restricted stock that tumbled in value before their lock-up period ended.
"I worked 100 hour weeks," one wrote. "Week, after week, after week. I hated the management. I hated the culture, but we all knew the IPO was right around the corner, and once it came, as long as the s----- [sic] organization could keep it together for the lockout period, I'd have made bank, and in some way, that would have made my three and something miserable years there worth it."
As someone who's lived and worked in San Francisco for over two decades--including nearly six years as a Leadership Coach at Stanford's Graduate School of Business--I certainly know people who've spent untold hours at jobs they don't particularly enjoy in the hopes of realizing a big payday from an IPO or acquisition. That's not a choice I'd make, and it's not a life I'd want to live, but I realize that people may make that choice for any number of reasons, and I empathize with those who've followed that path only to find their hopes dashed.
But in some cases employees seem to be praying that they make it into the castle with early investors before the drawbridge is pulled up--while counting on acquirers or public investors to be the greater fools. Temple notes that shareholders have sued Zynga, claiming that the secondary offering constitutes insider trading and citing the "colossal losses" experienced by both non-executive employees and other public shareholders.
I'm appalled (although, sadly, not surprised) by the actions taken by Zynga's executives and early investors, but I can't quite bring myself to see all of the employees as victims here. At least some of them hated management, hated the culture, thought it was a shitty organization and were just hanging on until the IPO, when public investors--who knew even less about the company than the employees did--would unknowingly take the fall for everyone else. (You didn't even need to be an employee to have a dim view of the company: over the past year or so several of my MBA students at Stanford mentioned what they perceived as an unhealthy working environment at Zynga.)
I'm not suggesting that Zynga employees were seeking to mislead public investors, but I'm less empathetic than I might be otherwise. As Joseph Sternberg wrote just last week in the Wall Street Journal, "The [greater-fool theory of investing] is more than a little dangerous, and plenty of people have lost a lot of money when they discovered they were the fool at the end of the chain."
Photo © Paul Sakuma, Associated Press.