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Sell! Sell? Hold.

October 31, 2012

After a two-day extra hold, Facebook employees are finally free to sell the stock that they received in the IPO.

Facebook’s employees remained on the sidelines as Facebook’s shares plummeted through the summer and in August, when 271 million more insider shares were released from lock-up. Peter Thiel, a very early investor in Facebook and a member of the company’s board of directors, sold the majority of his rich Facebook stock in August, helping to push the stock down to its all-time low of $17.73 in early September.

The markets are open, and it likely means that we’ll see a sell-off this week from the employee base looking to cash in on their compensation.  As the article notes, the stock issued came in the form of Restricted Stock Units, or RSUs.  These come in the form of stock shares directly deposited in an account on a tax-neutral basis.  Usually some shares are sold off to cover the taxes before the units are granted.  This means that the stock left, plus or minus gains, is free and clear once any time restrictions have lapsed.

There were stories around the IPO of lots of new cars and some houses being purchased on the assumption that the money would be there.  In some cases, a sketchy decision could wipe out any funds in a lowered-price environment.  I’ve lived in Silicon Valley before, and there’s a get-rich and act-rich attitude that can be infectious if one is not careful.

Do I think that all the employee stock is going to flow today?  No.  I’d actually bet that the volume is lower than expected.  There’s a tendency to want to maximize the stock value, so I think there will be some cash generated to cover costs.  I’d suspect that many of the employees will want to see some return for their compensation, but that more of them will be holding for when they actually need it.

By the way, I’ve heard some grumblings about how employees have to hold while the investors could get out at a higher price.  Well, that’s how the rules are written, and if I were an employee I’d probably look more at the upside of having the stock as opposed to the downside of others making more.  The more unfortunate backlash happens when normal people make money while others not in the company watch the money flowing.  I suppose that greed and jealousy are a reality in a fallen world, so we can’t do much.  However, I think we should celebrate that the Facebook employee base has done well, and I hope they take that encouragement to drive the company to future success.

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