My employer should have fired me for a chance to meet Zynga


By SFace   Follow   Thu, 1 Dec 2011, 4:49pm   3,700 views   15 comments
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Long story short, In 2009, many people were fired (among the 15M or so nationally) including some of my colleagues. Some of them end up joining Zynga which went from 2 to about 2,000 employees currently in about 3 years. When everyone fired, they hired. looked at the S-1 in detail today, should have fired me instead.

Had a chance to review the S-1, which is linked here. http://allthingsd.com/20111117/hasta-la-vista-stock-options-heres-the-zynga-sec-filing/

Here's the jaw dropping highlight from the 2007 equity incentive plan on page 127:

As of September 30, 2011, 151,173,391 shares of Class B common stock have been issued upon the exercise of options or pursuant to stock awards granted under our 2007 Plan, options to purchase 109,157,667 shares of Class B common stock were outstanding at a weighted-average exercise price $0.93 per share, restricted stock units covering 99,994,695 shares of Class B common stock were outstanding at a weighted-average grant date fair
value of $10.40 per share, and 4,632,918 shares remained available for future grant under our 2007 Plan.

Holy crap, 250M+ shares were awarded to employees already essentially at $0 (RSU) - less than $1 (ISO's). And this doesn't even count RSU's that are already vested. That is about 125,000 shares per employee. I know, I Know, most goes to the CEO, etc. say 50M shares, that still leaves 200M shares awarded to 2000 employees. That is still 100,000 shares per employee on average old/new and most just worked there for two whole years on average. Joining in 2009 would have made gotton at least 100,000K shares after initial grant and quarterly awards. Did I mention Zynga awards 15% quarterly bonus for everybody? Work 10 months and get 6 months worth of salary bonus!

What are the shares worth, I dunno Say $15, and we're talking about around 3B in cash (or 2B net of tax in new cash) for employees, which are 80% living in San Francisco. Who says being an employee is bad, looks pretty good to me. This is great socialism.

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  1. corntrollio


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    1   6:12pm Thu 1 Dec 2011   Share   Quote   Permalink   Like (1)   Dislike  

    Well, the average is tricky. Some of the founders/execs probably got millions of those options at 1 or 2 cents/share. Many of the current employees, whose stock vests with a 1 year cliff and then monthly after that, probably would pay strike prices of $6 or more.

    Note that the preferred shares were issued at $4.75 in November 2009 and $6.44 in April and June 2010 and then a whopping $14.03 in February. That doesn't tell us exactly what the strike prices for common stock options are for more recent employees, but it gives us an idea. In fact, you can see that the Chief Business Officer's options were granted at $6.435 (almost the same as preferred, it appears), and his employment agreement is dated July 2010 (he has since left the company and forfeited many shares). In contrast, the General Counsel was hired in April 2009, and his strike price is 17 cents. The Chief Accounting Officer was hired in April 2008, and his strike price is 1.875 cents. Many of your hypothetical co-workers would have strike prices that the CBO had or higher.

    Most of the employees are not very vested yet:

    As of September 30, 2011, approximately 60% of our employees had been with us for less than one year and approximately 88% for less than two years.

    That means 60% of its employees probably have strike prices at around the same as the CBO had or higher at $6.435. It also suggests a large number of people likely have strike prices greater than $4.75 as well, since that was a November 2009 valuation. At first glance, it seems like that shares were more spread around than some of the other recent IPOs and wannabe IPOs we've seen, but Zynga also has a lot of employees compared to Pandora which only had around 300.

    In addition, I'm sure you heard that the run of the mill employees were asked to give back some shares: http://online.wsj.com/article/SB10001424052970204621904577018373223480802.html

    Pincus himself has bought/sold a lot of shares, so it's hard to say what run of the mill employees actually have -- this is from the March 31 version of the S-1:

    From our inception in October 2007 to date, Mr. Pincus, our Chief Executive Officer, Chief Product Officer and the Chairman of our Board of Directors, has purchased an aggregate of 149,197,328 shares of our common stock. To date, Mr. Pincus has sold an aggregate of 43,629,310 shares of our common stock at prices ranging from $0.42 to $13.96. In addition to sales by Mr. Pincus, our other current and former executive officers and employees have sold an aggregate of 51,192,501 shares of our capital stock at prices ranging from $0.25 to $17.09 per share, including, 6,717,161 shares we repurchased from our other executive officers and employees. These sales include two tender offers in 2010 by third parties in which 383 employees were eligible to participate and 298 employees decided to participate and sell shares.

    Apparently, there were only about 200 persons actually holding stock as of September 30 -- you left that sentence out -- which means that not that many people have exercised yet, despite the availability of a secondary market:

    As of September 30, 2011, we had outstanding 564,931,115 shares of Class B common stock, which assumes the conversion of 304,887,421 outstanding shares of preferred stock into shares of Class B common stock immediately prior to the closing of this offering. As of September 30, 2011, we had outstanding 20,517,472 shares of Class C common stock. Our outstanding capital stock was held by approximately 200 stockholders of record as of September 30, 2011. As of September 30, 2011 we had outstanding warrants to purchase 18,854,848 shares of Class B common stock and having a weighted-average exercise price of $0.0246 per share. As of September 30, 2011, we also had outstanding options to acquire 109,157,667 shares of Class B common stock held by employees, directors and consultants pursuant to our 2007 Equity Incentive Plan, having a weighted-average exercise price of $0.93 per share.

    By the way, the officers and directors have almost 174M shares per the current S-1, of which Pincus has 91M and Bing Gordon has 61M -- this is down from 200M largely because Brad Feld took 34,560,000 shares with him when he left the Board, so if you include him, the number is more like 210M:

    All executive officers and directors as a group (13 persons)(18): 173,821,734

    For comparison, the institutional investors will have 200M shares when all is said and done (their preferred stock will get converted to common stock).

  2. thomas.wong1986


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    2   8:11pm Thu 1 Dec 2011   Share   Quote   Permalink   Like (1)   Dislike (1)  

    SFace says

    What are the shares worth, I dunno Say $15,

    You should offer $150 to $300 per share when they go public. Its the only way employees will be able to buy a flat in SF prime.. Your loss is their gain, and RE prices will go up. LOL!

  3. thomas.wong1986


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    3   11:55pm Thu 1 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    corntrollio says

    In addition, I'm sure you heard that the run of the mill employees were asked to give back some shares: http://online.wsj.com/article/SB10001424052970204621904577018373223480802.html

    Pathetic... They certainly kept many of their staff working 12 hours days last year redoing their revenue recognition and Oracle implementation. At the end .. get shafted !

  4. thomas.wong1986


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    4   11:57pm Thu 1 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    SFace says

    Did I mention Zynga awards 15% quarterly bonus for everybody? Work 10 months and get 6 months worth of salary bonus!

    They have a term for that.. "out of control spending"!

  5. mdovell


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    5   4:58am Fri 2 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    I'd be pretty careful with this. IPO's have done awful this year. There's probably a stipulation that you have to hold onto stock a few months after the IPO...this is to prevent people from dumping it on day one.

    I'm calling Zuckermans bluff here but I doubt that a Facebook IPO will bring a sustainable stock price increase.

    Pandora is doing bad, Linked in is doing bad. Social media is fine but these trends start, pop and then die. AOL then friendster, then myspace and now facebook. social media is fine as a networking tool but I don't see that much in the way of long term profit.

  6. thomas.wong1986


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    6   10:04am Fri 2 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    LinkedIn's PE today is still above 900x earnings. Not bad for a fancy online rolodex....

  7. corntrollio


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    7   11:06am Fri 2 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    SFace says

    What are the shares worth, I dunno Say $15

    Not quite:

    The company is offering 100 million shares for $8.50 to $10 apiece, according to a regulatory filing today.

    http://finance.yahoo.com/news/zynga-seek-1b-biggest-ipo-115818026.html

    That means that a large number of employees will have options in the money by $2-4/share at most. The vast majority of the rest will have them in the money $4-6/share. The earliest employees and some execs will do quite well, of course, but those are few in number.

    As another example of how dual class structures are now being consistently used in Silicon Valley to retain voting control:

    Founder and Chief Executive Officer Mark Pincus, who isn't selling any shares in the offering, will have about 37 percent voting control once the offering is complete.

    He may be the controlling shareholder as a minority shareholder.

    mdovell says

    There's probably a stipulation that you have to hold onto stock a few months after the IPO...this is to prevent people from dumping it on day one.

    The typical lockup period is 180 days.

  8. SFace


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    8   5:41pm Fri 2 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    corntrollio says

    Note that the preferred shares were issued at $4.75 in November 2009 and $6.44 in April and June 2010 and then a whopping $14.03 in February

    "That means that a large number of employees will have options in the money by $2-4/share at most."

    "109,157,667 shares of Class B common stock were outstanding at a weighted-average exercise price $0.93 per share" and 99,994,695 shares of Class B common stock were outstanding at a weighted-average grant date fair
    value of $10.40 per share."

    It is nearly numerically impossible to think the majority of the shares are in that 2-4 profit range based on the equity offering valuation.

    corntrollio says

    In addition, I'm sure you heard that the run of the mill employees were asked to give back some shares

    That just a sure sign their equity plan was too generous, even after Linkedin and Pandora standards. The options and incentives are lucrative beyond belief.

  9. SFace


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    9   5:56pm Fri 2 Dec 2011   Share   Quote   Permalink   Like   Dislike (2)  

    E-man says

    Hope all is well for you & your family

    Family had great year in every aspect. Equity return was below expectations but money flowing in many directions and fixed cost of living is going nowhere but down given cheap interest. We don't worry about money anymore. It's a great feeling. Signed up with a personal trainer to improve physical fitness to try to string a quality of life as long as possible.

    Any good equity idea? AGNC and NLY has been great recommendation.

  10. corntrollio


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    10   5:59pm Fri 2 Dec 2011   Share   Quote   Permalink   Like   Dislike (1)  

    SFace says

    "109,157,667 shares of Class B common stock were outstanding at a weighted-average exercise price $0.93 per share" and 99,994,695 shares of Class B common stock were outstanding at a weighted-average grant date fair
    value of $10.40 per share."
    It is nearly numerically impossible to think the majority of the shares are in that 2-4 profit range based on the equity offering valuation.

    For run of the mill employees? No way. The vast majority of employees, as I said, are recent hires. Again, read above.

    "That means that a large number of employees will have options in the money by $2-4/share at most."

    60% of the employees have a strike price of $6.435 or higher, as I mentioned, as of Sept 30, 2011.

  11. SFace


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    11   6:43pm Fri 2 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    corntrollio says

    For run of the mill employees? No way. The vast majority of employees, as I said, are recent hires. Again, read above.

    Controlio, like I meventioned previously, I like bouncing ideas off you.

    In any case, the mystery of the stock option RSU incentive is solved.

    Page 192 details the SO's were stopped around end of 2008. Run of mill employees were given RSU's in 2009 and after, which was the bulk of the new hires.

    So 100M was granted @ $10 FMV as of the S-1 or t1 billion unvested/unrealized for RSU's granted in 2009 and thereafter for the run of the mills. $ 500K average as of today. I would venture to guess my colleague got 20K sign-on and granted another 10K upon annual rewards. Hope they made the 83b election.

    But you are generally correct, The pre-2009 employees with the $1 strike hit the homerun since a few held most. When they are valued at 50 cents, they must be giving them out in the 100K's to millions

  12. Kevin


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    12   9:06pm Sat 3 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    I know a few 1-2 year old Zynga employees, and they didn't get anywhere close to 100K shares.

    Pre-IPO zynga gets you about the same equity as most silicon valley companies for an average employee tat this point.

    If the public offering goes well, and the shares hit $15-20, these guys will take home a nice chunk of cash, but that's not really all that much for 2 years of work in a silicon valley startup. They would have been far better off with the total compensation if they had joined Apple, Google, or even Facebook. This will be doubly true if they flame out like Groupon has.

    It's obviously a different story for older employees, or executives who are getting hundreds of thousands to millions of shares.

  13. mdovell


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    13   8:59am Sun 4 Dec 2011   Share   Quote   Permalink   Like   Dislike (1)  

    Kevin says

    If the public offering goes well, and the shares hit $15-20, these guys will take home a nice chunk of cash, but that's not really all that much for 2 years of work in a silicon valley startup. They would have been far better off with the total compensation if they had joined Apple, Google, or even Facebook. This will be doubly true if they flame out like Groupon has.

    Bingo..

    You also have to consider too how much competition there is in games. If people get fed up a bit with facebook at least if they go to google it is a public company and a bit more open. I use Chrome/Chromium and it uses html 5...apps are pretty easy games to set up..it is only a matter of time before they try to put one in with the other. In other words they could try to nearly incorporate everything (chrome, the site, apps, plus, android etc) I still wonder how/why apple missed the boat on social networking.

  14. Kevin


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    14   2:11am Fri 23 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Not sure why this old thread got bumped up, but I can't help but laugh at how ridiculous it looks now.

  15. bmwman91


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    15   9:40am Fri 23 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Kevin says

    Not sure why this old thread got bumped up, but I can't help but laugh at how ridiculous it looks now.

    +1

    Good for a Friday morning chuckle.

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