Twitter Employees, Blackrock and a $9 Billion Valuation
Why do companies go public (aka, the IPO route)?
To raise cash.
That, in many cases, outweighs the attendant problems with regulation, scrutiny, the tyranny (my favorite word these days) of Wall St analysts’ expectations, etc.
And for employees of many hot tech companies, especially those that got in “at the ground floor”, going public is a quick way to make millions of dollars and spread the wealth around – in the form of taxes (California, for one, takes IPOs and stock sales into account when forecasting tax revenues), new homes, fancy cars, luxury goods and perhaps their children’s college funds.
But what to do if you work for a hot tech company that is in no rush go public?
In Twitter’s case, it allegedly brought in $350m in revenue in 2012 and could bring in as anywhere from $600m to $1B in 2013. Every VC firm wants to give it money. Naturally, it has no real IPO timeline. But while this is great if you are Twitter’s founder or CEO, employees must be very vexed. Especially the early ones, who are likely sitting on millions of dollars of stock options and grants.
Interestingly, though they can’t sell shares on NASDAQ until the IPO, they can still sell to private buyers or through companies such as SecondMarket. But there’s a catch – they can only sell 20% of their allocated shares (so they don’t have more than 500 shareholders of a certain type, inviting SEC action and also causing a loss of motivation for cashed-out engineers). So if you are sitting on $10m worth of stock and you can only realize $2m in gains today, there goes that start-up idea. Or the early retirement in Bali idea. And all you can do is wait.
But for a lucky few – hundreds, if you believe Reuters, or just two dozen or so, if you believe Forbes’ contributor Dan Primack – that is about to change.
As we learned last Friday, Blackrock, the world’s largest asset management firm (by managed assets, I assume), is going to buy $80m worth of stock from those selected Twitter employees. Not enough to plug in California’s legendary budget deficits and certainly not enough to fuel a luxury car boom, but good enough to quiet the grumbling in the “founding employee” circles? Most likely.
The question is, for how long?
PS: As an aside, this also tells us that this transaction values all of Twitter ~ $9B, which is a good marker for those that watch these kinds of things.
An interesting comment (and an update) from Dan Primack’s newsletter this morning:
Twitter isn’t done letting early employees sell shares, in an effort to tamp down internal IPO desires.
Last Friday the Financial Times was first to report that BlackRock was buying around $80 million of shares from at a valuation just north of $9 billion. We later added that the only sellers would be a small group of early employees (fewer than two dozen).
Now we’ve learned that there is yet another block of early employee shares available, but this time at a whopping valuation of $9.9 billion. It was secured by a fund affiliated with Gentry Venture Partners, which already is in Twitter’s cap table. Seems the premium to BlackRock was to prevent the offer from getting right-of-first-refused (ROFR’d). No word yet on how much the total deal would be worth, or how well Gentry is doing finding buyers.