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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.
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Mr. Gordon:
I have lived and worked in Silicon Valley since the dawn of modern computing, including 10 years at 3000 in Building 4. I have seen the changes here with the influx of investors who have little understanding for technology and consequently, little value for the people who actually produce it, even when it brings them great returns.
KPCB has always represented to me the heart of investing here. Every technical guy (and some gals) viewed VCs as people who were needed, even if they were known to take your lunch if you turned your head to admire the view from the Sundeck, and now Rosewood. Kleiner was seen as the cream of the crop, and more collegial though just a shrewd as others like Sequoia or Accel.
It saddens me to no end the deal with the Zynga employees. It will be the deal that initiates a change in the relationship between the people who actually do things and the VCs. It is breaking the unspoken spirit of this place in a way that defies explanation. People make bad deals. Most VCs are known for being jerks when there is money on the table. But this deal destroys the symbiotic bond between technology developers and Sand Hill Road. (
http://www.cbsnews.com/8301-505124_162-57322667/zynga-to-employees-drop-those-stock-shares/)
The wise entrepreneurs have always viewed credit cards and rich aunts as a better source of funding than what they'll get when they bring in the guys in khakis and Facconable shirts, as you well know. The impetus for private funding outside the VC arena is going to be "kickstarted" now beyond expectations.
Kleiner helped build this region like no other firm. Now it has done something that will be looked back on as having destroyed the most important thing it had built - a system for co-opting smart, energetic people to do great things for the promise of sharing in the proceeds.
Lori Hobson
