Should Facebook board members wait to cash out?

Should Facebook board members wait to cash out?

Summary: Peter Thiel, on Facebook's board, has drastically reduced his ownership. Is this a sign of a lack of confidence in the future of the company or a savvy move?

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Dashiell Bennett, writing at The Atlantic Wire, wonders why Peter Thiel, an early investor in Facebook with a $500,000 initial stake, and a member of the board, recently sold more than 20 million shares.

While no one is questioning Thiel's right to take back what he earned, some people are still wondering why a board member would choose to essentially exit the company (financially, at least) so soon after going public. And before regular employees will get the same option. Their shares are "locked up" until at least at October.

... It feels to some like a vote of no confidence from someone who played such a key role in the building of the company and now looks ready to move on to other things.

First of all, board members are rarely significant shareholders in the company on which they serve, they are usually brought in from other, non-competing companies, to provide advice and experience to senior management.

And as for the poor employees, well they are the last of the lockups because they took the lowest risk (and received a good salary) compared with the early investors.

Mr Thiel's share sale is best explained as the reasonable actions of a VC. The share overhang, following the IPO, is massive. The number of locked up shares represent about three more Facebook IPOs coming onto the market over the course of this year. It's a good reason to pull money off the table ahead of others doing the same later on.

To some extent, it could be said that Facebook's [$FB] share price has held up reasonably well, given the giant waves of shares that periodically become unlocked and come crashing/cashing-in to the market.

The sale of Mr Thiel's shares is very likely a signal that Facebook is looking for a new set of board members. Companies need different sets of skills at different stages of their lives. 

Mr Thiel was useful when the company was small and growing fast, today it's very much a different company and needs board members that can help it through that tricky post-IPO phase and into a more mature and stable configuration.

 

Topic: Social Enterprise

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2 comments
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  • We know who is selling

    We know who is selling but who is buying? I feel sorry for guys buying FB stock for around $20.
    As for Peter Thiel I have to say that it was a smart move. At this time Facebook has no clear growth direction for the future and with price to earning ratio of 111 it is really overpriced. Realistically share price should be in $3-5 range for FB stock to be attractive for purchase.
    paul2011
  • He may also want the money to purchase something?

    Microsoft sold a portion of their stock, made back their investment, and a little bit of a profit while still having 80% of their shares left in facebook. That is not an unusual move in the industry.

    Maybe this gentleman is thinking the same way?
    John Zern