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Background
Zynga, the company that created Farmville, MafiaWars, and other popular social networking games, is expected to do its IPO soon. The company just demanded some of its early employees give back their stock or they’d be fired (and therefore give back their stock through forfeiture). Zynga’s rationale is that these early employees turned out not to be worth as much as expected in hindsight. Read this: http://www.cbsnews.com/8301-505124_162-57322667/zynga-to-employees-drop-those-stock-shares/
For those outside Silicon Valley to whom this all seems confusing, this is why people here care: Early employees join startups to help develop a young company (often just an idea on paper) into something bigger. Most startups fail, so it’s risky to work at them. To make people join and create a strong team, startups give their employees warrants or stock should the company ever be worth something. Typically, the early shares are worthless because the startup doesn’t make it. When the startup does succeed, sometimes it is worth a lot and those are the stories that make the news and fuel the economy here. Importantly, if the startup does succeed, rarely do many, if any, of the original employees, including the founders, turn out to be as valuable or as relevant to the eventual bigger company as they were when they joined. They took the chance though with their “sweat” equity to get the company going, so they are rewarded when the company is sold to through an IPO or to another company. So if Zynga and its famous investors like Mr. Gordon’s firm decide to start taking away stock from early employees after it is obvious that the stock is going to be worth more than expected, it goes against the way Silicon Valley works. It may or may not be legal; but it isn’t how it’s done.
