Why some Facebook employees may quit after IPO


2 May 2011
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SAN FRANCISCO: As the first day of trading in one of the biggest initial public offerings (IPOs) wound down on Friday, the frenzy around Facebook is expected to have a ripple effect on start-up activity in Silicon Valley.

"I believe that Facebook employees, emboldened by their company's success, will venture out themselves to do extraordinary things," Timothy Draper, one of Silicon Valley's top venture capitalists and founder and managing director of Draper Fisher Juvertson (DFJ), told ET.

Facebook, valued at $104 billion, is the largest technology IPO in the US history. The feeling in the Valley is that, armed with their new IPO wealth, many Facebook employees may eventually leave Facebook and spawn off even more start-up activity in Silicon Valley by either starting companies or investing in them.
"We have backed an extraordinary number of leavers. Years ago, they spun off from companies like HP and Intel. Then they spun off from Microsoft, then Yahoo!, and more recently from Google. Facebook will likely be a good source of entrepreneurs," said Draper.

Valley veterans, including serial entrepreneurs and fellow venture capitalists, concur with him. "Facebook is a psychological boost to the extent that the likes of Zuck (Facebook founder Mark Zuckerberg) may now allocate their funds even towards high-risk investments, as long as there is an exit strategy," says Mark A Fauci, a serial healthcare entrepreneur.

"I'm sure there are ideas cooking up inside Facebook right now!" adds Canice Wu, angel investor and president of Plug and Play, Silicon Valley's largest incubator that is home to over 300 start-ups. "We are extremely excited to see these new entrepreneurs come out and hope to see many of them at Plug and Play."

When this new wave of entrepreneurship happens, experts feel they will most likely be in mobile, big data, social networks and the next generation of cloud infrastructure. "These are all billion-dollar markets in their own rights and Facebookers have seen these first-hand from the inside walls of Facebook. We are likely to see more activity in these areas," says Tim Guleri, MD of Sierra Ventures.

"Facebook employees are likely to start or invest in companies that leverage their domain experience in Facebook; and these are not necessarily in social media," says Ankur Jain, vice-president at Blumberg Capital, an early-stage VC firm with a nearly $200-million fund focused mostly on Web 2.0, software and mobile.

To illustrate, he points to one of his firm's portfolio companies, Nutanix. Founded by an ex-Googler, Nutanix, which does not use Google's core business, enables datacenter virtualisation without using network storage.

Employees leaving companies after they go public for entrepreneurial pursuits is almost a part of Silicon Valley's culture. It happened during the dot com boom, when hundreds of companies had rapidly rushed to the market. But it was arguably felt the most with the Google IPO. Several of its former employees turned into angel investors and now run a start-up incubator called Angelpad.

Guleri shares how one of his firm's portfolio companies Ooyala - a Mountain View, CA-based video infrastructure company - was founded by product managers for AdSense (once Google's main product) who had left the internet giant soon after its IPO.

Vibhu Mittal, who was a senior scientist at Google and one of its early employees, too left soon after the Google IPO. He had earned several millions of dollars, which he invested in pursuing his lifelong passion: revolutionising education.

"When I had joined Google, there were 100 people and by the time I left, there were 20,000 people. It was a very different company. I wanted to make a real impact through education, which is not something I could pursue at Google," says Mittal.

Today, his start-up Root-1 is making neuroscience-based games that make learning languages for elementary school students a lot of fun. "In such cases, it's essentially the second and third tier of management who tend to leave. They have done a lot of groundwork, feel empowered and want to replicate the success," says Raj Jaswa, a serial entrepreneur who had earlier worked at Intel.

A great example of this is Gokul Rajaram, once known as the godfather of Google AdSense" who had left Google post IPO to start Chai Labs, which he then sold to Facebook. Earlier this month, just days before Facebook's big day, the company's Vice-president of Technical Operations Jonathan Helliger quit Facebook to join venture capital firm North Bridge Venture Partners (NBVP). His LinkedIn profile now lists him as "entrepreneur, investor, rebel".

But Christopher Nguyen, a former Googler who has founded a social network called YaTown, feels that there are only so many similarities between Google then and Facebook now and therefore, the impacts on entrepreneurship will tend to vary greatly as well.

"Along with financial benefits, Google's culture gave many employees the benefits of being at a startup without having to jump out and take the risk themselves. So the flood of startups by Googlers took off only about four to five years after the Google IPO," says Nguyen.

"But Facebook's culture has had three generations of employees -- the college kids working in dorms, a bunch of developers and people managers and lastly, engineering strength at all levels, which has only happened in the last two-three years. So people might be more willing to leave Facebook for entrepreneurial pursuits, even if like Helliger, they continue to be beneficial to Facebook."

Facebook fizzles in debut
Facebook shares fizzled on their first day of trade on the Nasdaq, erasing early gains of as much as 18% to trade close to their IPO price. The stock opened 11% higher and rose to $45 before rapidly heading south in frenzied trade, touching its initial public offering price of $38.

The No. 1 online social network raised as much as $18.4 billion in one of the biggest IPO in US history. After a delay in the opening print that drove up anxiety levels among traders and onlookers outside the Nasdaq, the company's closely watched stock began trading at $42.05, compared with an IPO price of $38.

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