Zynga chief Mark Pincus beat today's IPO to the punch, reported The Wall Street Journal.
As Zynga, the four year-old social gaming company, saw its valuation soar in the private markets earlier this year, Pincus, a former Wall Street banker, sold shares back to Zynga at $14 a piece, which is 40 percent above the company's offering price when it went public today. Pincus, who still holds a 16 percent stake in Zynga, pocketed $109 million on the deal in March, the report said.
But "tech-company entrepreneurs selling stock before a public offering isn't new," the Journal noted. "What's different in Silicon Valley today is the size of some of these sales." Such pre-IPO payouts, as they get bigger in size, continue to spark debate.
Critics argue that the stock sales allow founders to cash out -- and sometimes check out -- well before a public offering, the proverbial finish-line for a startup, when it must disclose financials to the public and reveal a more complete picture of the risk to investors. Taking money off the table can make founders and employees less hungry, the thinking goes, and prevent an emerging company from living up to its full potential.
Proponents, on the other hand, say the pre-public stock sales are good for innovation and the startup economy. For one, investors in the private market aren't exposed to undue amounts of risk since they're largely institutional, supposedly sophisticated and presumably don't need a full set of SEC-approved financials to make good investment decisions. In addition, cashing in some chips ahead of an IPO can re-focus entrepreneurs and allow them to build their companies with less distraction, rather than having to worry about a mortgage and car payments, or succumbing to a premature acquisition offer.
"Letting them cash out in the growth phase can give them enough money to be willing to take the kind of risks their VC paymasters want to see," wrote Reuters' columnist Felix Salmon of private company stock sales by entrepreneurs.
Whether Pincus' pre-IPO winnings serve Zynga well in the long run remains to be seen. But clearly the market for private company stock is booming, and successful tech companies will increasingly have the option to net huge payouts for their executives well before the company's shares hit the public markets.
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