Facebook IPO will create more Seattle-area multimillionaires
The morning after Facebook makes its initial public offering of stock, there may be a lot of people updating their statuses to “I’m a multimillionaire.”
And given that Facebook’s Seattle office is the company’s largest office outside of California, some of those celebrating could be buying a round at the table next to you or passing you in a new Porsche sometime soon.
With its expanding presence in Seattle, Facebook’s impact on the Puget Sound economy is sure to grow. And local financial advisers, including one online startup called FutureAdvisor, are hoping to cash in on the social media network’s newly minted millionaires.
Facebook could launch its IPO as early as next week — the move is expected in May or early June — and when it does, an estimated 1,000-plus Facebook employees will become millionaires.
“The impact in Seattle will continue to grow over time as Facebook adds more employees,” said Marshal McReal, principal at Seattle’s Garde Capital and a Facebook stockholder.
McReal bought private shares of Facebook last year using SharesPost, an online marketplace where accredited investors can buy pre-IPO stock from late-stage venture capitalists or other shareholders, such as employees.
He and his firm are also engaged with many Facebook employees, assisting them in figuring out how to manage their new resources, he said.
The pool of prospects for Garde Capital and other money managers is growing: Facebook’s Seattle office moved earlier this month from a small space near Pike Place Market to a larger building on Minor Avenue to accommodate its growth. In just two years, the company has expanded in Seattle from two employees to 90. And it plans to continue growing; the new office can hold up to 170 people.
Facebook has made stock options available to employees since 2005, according to Securities and Exchange Commission filings. With more than 3,200 employees currently on staff, those with stock options will soon have significantly more resources at their disposal than they had before.
Facebook declined to make employees available to talk about what they would do with the new windfall.
But McReal said they’ll face many challenges — especially given that many of them are young.
They’ll need to consider diversifying their investments, taking into account risk management and hedging strategies because, for most of them, their holdings are concentrated in Facebook stock, McReal said.
“There’s also the psychological impact of becoming enormously wealthy at a relatively young age,” he said.
While suddenly having to manage millions of dollars is a problem most people would love to have, young people frequently underestimate the significance of the change, personally as well as financially, McReal said.
“Relationships can change, and that is one of the many issues that shouldn’t be ignored,” he said.
Those who’ve invested in private Facebook stock, like McReal and Facebook employees, will not be allowed to sell for six months after the IPO in order to prevent a rush to profit. But on paper the shareholders will immediately be wealthy.
FutureAdvisor hopes the tech-savvy millionaires will turn to software to manage their money.
The company’s co-founders, Bo Lu and Jon Xu, started FutureAdvisor a couple of years ago to provide financial advice to anyone, regardless of how much money they make. The free online site lets people move their 401(k) retirement money from high-fee funds into those with lower fees and helps them diversify their financial portfolios to protect against risk.
FutureAdvisor, which offers paid services in addition to its free site, is quickly adding 401(k) plans to its system. It supports 140 companies’ plans now, including Facebook’s. That means Facebook employees are only a few clicks away from being able to manage their finances on FutureAdvisor’s system.
“Young people have a more long-term view (of the investment market),” Lu said. “This is one of the few fields where that kind of nonchalance is the best for you.”
With the coming IPO, Facebook employees are bound to be targets for financial advisers looking to cash in. But with FutureAdvisor, Lu said, they can manage their money themselves online without worrying that someone will try to sell them something they don’t need or want, such as life insurance for a 22-year-old.
“Young people would rather be out doing what they do, not watching their finances,” Lu said. The founders both have backgrounds in finance.
FutureAdvisor is banking on a generation of people who would rather manage their finances online and get a text message when they need to do something.
“There are generations of people growing up now who aren’t always looking forward to a meeting with a person in a suit,” Xu said. “That isn’t the interaction they see in managing their finances.”