Photo: Fortune Live Media / flickr
You know what’s cooler than a million dollars?A billion dollars… said these five tech CEOs right before they no longer had a billion dollars.
Launching a hot internet startup, taking it public and making billions of dollars for yourself and your investors is one of the most exciting ways of the last 20 years to make a bloody fortune.
Unfortunately, being the CEO of a hot dotcom company can have a few more ups and downs than, for example, being the CEO of Coca-Cola.
Actually, it can be more like a roller coaster ride, and with each peak and valley your net worth increases or decreases exponentially. The last year has been rough for many companies and the economy in general, but the tech industry has been battered especially hard. Along the way, these five tech CEOs in particular have lost a fortune…
These 5 Tech CEOs Who Have Lost A Fortune In The Last Year >
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Back in April my dad asked me to explain what Instagram was and why Facebook was buying them for $1 billion. It's not as easy to explain as you'd think. It's a free app that distorts your photos to make them look older and lower quality…kind of like a Polaroid… Regardless of what you thought of Instagram, you had to give props to 28 year old CEO Kevin Systrom after he scored a billion dollars for a company that had no revenue or monetization plans whatsoever as far as we know. Systrom's 40% stake was worth $400 million, another $100 million went to co-founder Mike Krieger and the remaining half billion was divvied up by various venture capitalists. The terms of the deal would pay Instagram $300 million cash and 23 million shares of Facebook stock which at the time (prior to their IPO) were valued at $23 a share or $690 million. Good deal right? Ehhh… Turns out not so much. It would have been a great deal if Facebook's stock exploded after their IPO like everyone hoped/expected but, as we laid out in example #4 above, Facebook went on to lose half its value, Instagram lost $300 million and Kevin Systrom's take was reduced by $120 million to $280 million.
Instagram teaches a very good lesson in negotiation. Usually when a company accepts stock in a buyout, the sellers lower their risk by requiring a floating share price. A floating share price allows the number of shares involved in the buyout to increase or decrease depending on the buyer's stock price at the time the deal officially closes. This also means that if the stock goes way up, the acquired company does not benefit from the increase in value but, their original deal is locked in stone. In hindsight, Instagram probably should have opted for more protection, but in the long wrong, maybe they'll be vindicated.
Facebook's bad luck didn't end with their disastrous IPO back in May. The IPO was a complete debacle, leaving investors reeling with unfilled orders and bad information. Facebook's share price peaked briefly at $45 on it's actual IPO day, giving the company a near $85 billion market cap and CEO Mark Zuckerberg a net worth of $20 billion. June, July and August have been brutal for the young social network. The stock has lost half its value and Zuckerberg's net worth has dropped to $10 billion. Shockingly, several analysts and reporters have actually called for the mighty Zuck to step down from his own company!
As we reported back in October, Netflix CEO Reed Hastings has experienced one of the most incredible falls from grace in CEO history. Almost exactly one year ago, Netflix was a Wall Street darling, with the stock hitting an all time high of $300. The company had a market cap of $16.5 billion and Reed Hasting's net worth was $900 million. Fast forward 12 months and Netflix's stock has lost 78% of its value thanks to their very public, very disastrous Qwikster debacle which raised fees and sent subscribers fleeing by the tens of thousands. It also didn't help that the company lost several key licensing deals which left their streaming library very thin. Reed Hasting has been selling his own stock like there's no tomorrow and his net worth is currently $280 million.
Zynga was once the hottest tech company in the world, with a highly anticipated IPO that many expected would value the social game maker at $15 -- $20 billion. Zynga went public in December of 2011, at a respectable $9 price per share. Over the next four months, the stock slowly climbed to a peak of $16 which made the company worth $7.4 billion. CEO Mark Pincus owns 67 million shares of Zynga which were worth nearly $1.1 billion at the stock's peak. Prior to creating Zynga, Pincus spent $400,000 to buy an early 0.5% stake in Facebook which, at one time, added an additional $425 million to his net worth. Apparently this has been a rough summer for Mark Pincus, Zynga and Facebook because after peaking at $16, Zynga started a slow slide and by June was in a full free fall,losing over 80% of its value. Zynga today trades in the $3 range (and has gone as low as $2.6) which gives the company a market cap of $2.4 billion. The value of Pincus' shares has dropped from $1.1 billion to $200 million, a loss of $900 million. To add insult to injury, Facebook has lost half it's value since going public which has cut Pincus' $425 million stake down to $212 million. Mark Pincus' net worth today stands at $425 million, a total loss of $1.113 billion in a matter of three months.
Before Groupon went public, the company raised over $950 million in venture capital of which $810 million was paid out to early investors and insiders. CEO Andrew Mason paid himself $30 million and early backer Erick Lefkofsky took out $320 million. This move raised a lot of eyebrows, but their Venture Capitalists quickly focused on the company's November 2011 IPO which is where the real gold would be found. Groupon's public offering has been a disaster. Mason and Lefkofsky, who own 46 million and 110 million shares respectively, became an instant billionaires when GRPN debuted on the NASDAQ at $26 a share. Mason's net worth grew to $1.4 billion when the stock peaked at $31.1 and Lefkofsky's net worth hit an all time high of $3.4 billion. Unfortunately due to several accounting regularities and slower sales growth, Groupon has lost 85% of it's value over the last 9 months, shrinking Andrew Mason's net worth by more than $1.17 billion to $230 million. Eric Lefkofsky's net worth has shrunk by $2.9 billion to $800 million (his shares are worth $506 million, but remember he took out over $300 million from the VCs). Most analysts agree that Groupon's immediate future does not look very bright. Consumers and businesses have grown tired of the daily deals concept and the stock continues to slide each day.